NEW DELHI (Reuters) - State Bank of India (SBI) <SBI.NS>, the nation's biggest lender by assets, will gain $120 billion in assets following its merger with associate banks and Bhartiya Mahila Bank, the lender said in a statement on Saturday.

In a first move to consolidate India's struggling public sector banks, SBI's board on Thursday approved share swap ratio for the proposed takeover of five units that had been run at arms-length, as well as state-run Bharatiya Mahila Bank, a bank for women set up in 2013.

Policymakers want to recapitalize and consolidate India's state-run banks so that they can extend fresh credit and help drive an investment-led recovery in Asia's third-largest economy that is currently getting a boost from state and private consumption.

India's 27 public sector banks account for 70 percent of its banking sector assets, as well as the lion's share of the country's $120 billion in troubled loans.

SBI said the merger would expand its assets by 36 percent to about $447 billion.

(Reporting by Rajesh Kumar Singh; Editing by Shri Navaratnam)