Jaitley said that there would be no job losses due to merger of the banks and that the move would create a bigger entity like the State Bank of India (SBI).
The cost of lending could also become cheaper, he added.
During the Question Hour, the minister said that out of the 21 public sector banks, 11 are under PAC (Prompt Corrective Action) framework.
PAC is initiated against banks that have high levels of non-performing assets (NPAs).
Replying to a supplementary question, Jaitley said the curve of non-performing assets would go down and that the Insolvency and Bankruptcy Code has helped in bringing back around Rs 3 lakh crore into the system.
"In the budget estimates of FY 2018-19, Rs 65,000 crore has been allocated for recapitalisation of PSBs and an amount of Rs 51,533 crore has been infused in PSBs till December 31, 2018," he said.
The minister also said that in recent past, Rs 90,000 crore was allocated in the Union Budget and infused in various PSBs by the government during financial year 2017-18.