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Bank of Baroda, Vijaya Bank and Dena Bank to be merged

NEW DELHI: The government proposed the merger of three banks — Bank of Baroda,Vijaya Bank and Dena Bank —aimed at creating the country’s third-biggest lender. That’s seen as preparing the ground for consolidation among the remaining 17 state-owned lenders that have been a drain on the exchequer and marking the next big move inbanking reforms. The boards of the three banks will now consider the proposal. The combined entity will have a strong presence across the nation with more than 34% oflow-cost deposits, a capital buffer of nearly 12% and a business book of Rs 14.82 lakhcrore. Bank of Baroda is the biggest of the three with Rs 10.29 lakh crore of totalbusiness, followed by Vijaya Bank at Rs 2.79 lakh crore and Dena Bank at Rs 1.72 lakhcrore. “The government has suggested this to the banks to consider these proposals, andhopefully shortly the boards will meet and after adequate consultation will take a decision,”said finance minister Arun Jaitley.

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Big Change:The end of Five-Year Plans: All you need to know

The consolidation was proposed by the alternative mechanism comprising chairperson Arun Jaitley and cabinet ministers Piyush Goyaland Nirmala Sitharaman.

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Jaitley observed that the government is seeking to ensure that there is no merger of relatively weak banks and that it has held talks withthe Reserve Bank of India. “You can have two well-performing banks absorbing a third one, and hopefully creating a mega bank which will be sustainable, whoselending ability will be far higher,” he said, adding that nobody should have a worry because this amalgamated entity will increase

vijaya bank

dena bank

bank of b

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banking operations. “Its (merged entity) ability to increase and expand will be inevitable.”

The merger proposal was made public after markets closed. Bank of Baroda ended 0.41% up Rs 135.10 on the BSE. Vijaya Bank rose0.93% to Rs 59.80 while Dena Bank fell 0.62% to Rs 15.95. The finance ministry said in a release that the envisaged amalgamation willbe first ever three-way consolidation of banks in India. “The merger will help improve operational efficiency and customer services,” financial services secretary Rajiv Kumar said, adding thatthe merger would involve synergies in the branch network, low-cost deposits and subsidiaries. He said employees would be protected, brand equity will be preserved and that the government will continue to provide capital supportto the merged entity.

“A scheme of amalgamation, which will be formed, will be laid before Parliament,” he said. Previously, the government had pushed through consolidation of the State Bank of India group, with SBI absorbing five associate banksand Bharatiya Mahila Bank. That process was completed last year.

Gains of Four R’s – Recognition of NPAs, Resolution under IBC, Reforms under #EASE & Recapitalisation visible. 6th…https://t.co/EGuGce3gNQ— Rajeev kumar (@rajeevkumr) 1537188364000

The finance ministry stated that the provision coverage ratio (PCR) of the proposed amalgamated entity will be 67.5%, well above theaverage of public sector banks (PSBs) at 63.7%. The capital adequacy ratio of the combined entity would be at 12.25%, significantly above the regulatory norm of 10.875%, the financeministry said, adding that it would be better positioned to tap capital markets. “The consolidation will help create a strong global competitive bank with economies of scale and enable realisation of wide-rangingsynergies,” the statement noted.

https://twitter.com/rajeevkumr/status/1041669617947631623

Bank of Baroda managing director PS Jayakumar said that the bank’s board will meet shortly to discuss the amalgamation. “The wholeprocess may take up to six months but we can try and speed things up,” he said. Jaitley also said that no employee will face serviceterms that are in any way adverse in nature to the prevailing rules. “On the contrary, the State Bank of India (SBI) experience has been that amongst the merging entity and new entity, the best of serviceconditions continue to apply to all of them,” he said. “So, employees of relatively smaller banks will get an opportunity to improve theirworking condition.”

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