The government of India announced today the merger of three public sector banks namely Dena Bank, Bank of Baroda and Vijaya Bank. Rajiv Kumar, Department of Financial Services Secretary, announced that the decision was arrived at after meeting of the 'alternative mechanism' which was set up during last year to consider consolidation of the Indian Banking Sector. This proposal has to be passed by the Boards of the individual banks.
The merger comes in following the completion of State Bank of India and its associated banks during 2017. He further added that the merger of associate banks with SBI bore fruitful results and this led the government to take further steps to consolidate the three public sector lenders.
The merger of Dena Bank, Vijaya Bank and Bank of Baroda will create a lender which will occupy the third position amongst largest banks in India.
Arun Jaitley, Finance Minister of India briefed the media and said that the merger has been conceived in such a way that the combined lender will not end up being weaker than the existing individual entities.
The Finance Minister further added "In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank. LIC, which has been keen to acquire a bank for some time, has made an offer for IDBI Bank because it suited their interests. We were waiting, before moving forward, for the situation to start turning. And therefore, now the alternative mechanism has gone ahead and taken this decision today."
He also stated that the proposed merger will have no negative impact on the employees as well as the customers of the respective banks. The collective employee base of merged banks will be more than 85,000 employees. The government has assured that following the merger there will be no retrenchment of the employees. Around 9,500 branches are likely to be closed during the merger.
The combined bank will create the largest lender which will have its presence across the country. The Vijaya Bank and Dena Bank currently have more regional focus whereas Bank of Baroda has a widespread network across India.
The merged banks will have a deposit base of Rs 8.41 lakh crore and advances base of Rs 6.4 lakh crore. The gross Non -Performing Assets ratio will be around 13 percent with gross non- performing assets to be approximately around Rs 80,000 crores.
Dena Bank is currently under the Prompt Corrective Action (PCA) framework and the bank has restrained from lending further loans. The gross NPA ratio currently stands at 22 percent which is the highest in the banking industry. Contrarily, Vijaya Bank is performing better as it has a gross NPA ratio of 6.9 percent. The Bank of Baroda's bad loan ration currently stands at 12.4 percent.