New Delhi, Oct. 28 -- The government is drawing up a fresh blueprint to merge select public sector banks with an aim to scale up such lenders and streamline overlapping operations, three people aware of the matter said. This is part of the latest in banking sector reforms in the country planned in the next few years.

All three sources preferred to stay anonymous.

The discussions at the finance ministry are around a merger of Union Bank of India and Bank of India, both headquartered in Mumbai, said first person mentioned above said. If the merger goes through, it will create a state-run lender ranked second only after the country's top bank by assets, State Bank of India.

The second largest public sector bank today is Bank of Baroda wit...