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Published On: Mon, Sep 17th, 2018

Government to merge Bank of Baroda, Vijaya Bank, Dena Bank

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jetely-17NEW DELHI : The central government has announced the proposal to merge three public sector lenders – Bank of Baroda, Dena Bank and Vijaya Bank. The combined lending entity will be India’s third largest globally competitive bank, said Rajeev Kumar, Secretary – Department of Financial Services, Ministry of Finance in a media address on September 17.
The decision was taken at the meeting of a ministerial panel headed by Finance Minister Arun Jaitley which oversees merger proposals of state-owned banks. The other members of the panel include Railways Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.

During April-June quarter, Dena Bank reported gross non-performing asset (GNPA) of 22.69 percent of total advances while net NPA (NNPA) was 11.04 percent; Vijaya Bank’s GNPA was 6.19 percent and NNPA 4.10 percent. Bank of Baroda’s GNPA was 12.46 percent and NNPA was 5.4 percent. At the end of March 2018, total NPAs in the banking sector was approximately Rs 10 lakh crore.
 The announcement to merge the three banks was made after the latest meeting on ‘alternative mechanism’. The meetings were initiated last year to consider consolidation in the banking sector.

The Modi government had announced the consolidation of public sector banks in 2016 owing to mounting non-performing assets. The plan was to cut down the number of PSBs by half from 21 to about 10-12 banks. After the process, Dena Bank, which is under the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA) framework, is expected to function as a regular bank.

“Dena bank would no longer be covered under PCA after amalgamation,” said Bank of Baroda Managing Director, PS Jayakumar. He said the process of amalgamation could take four to six months to complete.
Jaitley pointed out the decision to merge these banks was the third step in the entire process of banking consolidation. “First we merged the State Bank of India with its five subsidiaries and then the life insurance corporation proposed to take over IDBI Bank… This is the third step now,” he said. He said the government considered the “capacity to subsume a relatively weaker bank into a merged entity” as the “principal factor” before selecting the three banks.
“This major decision was taken by Alternative Mechanism today to amalgamate Bank of Baroda, Dena Bank and Vijaya Bank. While making this suggestion, we have borne in mind that we don’t want a merger of what are relatively weak banks,” Mr Jaitley said, adding, “You can have two well performing banks absorbing a weak one in the amalgamation process and hopefully creating a mega bank which will be sustainable, whose lending ability which will be far higher.”
Asked about the choice of banks, Mr Jaitley said this is the government’s assessment because one of the banks [Dena Bank] has been placed under the prompt corrective action framework. “We want to save all the banks. When you make a merger you want to make sure that the merged entity is a stronger entity. Therefore our capacity to subsume that weaker bank into the merged entity, which will be a stronger bank, is the principal factor that weighs with the government. Of course, we see the all India expanse and so on…”

Enlisting the benefits,Rajiv Kumar, Secretary, Department of Financial Services added that the proposal entails that the amalgamated entity will be the third largest in India. “It would be a strong competitive bank with economies of scale. The entity would also be positioned for substantial rise in customer base, market reach and operational efficiency.”
The Secretary added that the employee interests will be protected and brand equity will be preserved. “Capital support, if any, to make it a big and global bank will be ensured,” he added.( With Agency Inputs ).

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