Dena, Vijaya, BoB to merge and form country’s 3rd largest bank

Arun Jaitley

In an attempt to create stronger public sector banks in the country, the Central government on Monday said three state-owned lenders - Bank of Baroda, Vijaya Bank and Dena Bank - will be merged to create the country's third largest lender. This step will particularly help Dena Bank, the weakest of the three, which is now under the Reserve Bank of India's Prompt Corrective Action (PCA) framework and has been barred from extending fresh loans. The first was the merger of the five associate banks of SBI with itself.

He also informed that the RBI was also consulted before the proposal.

"It is a major economic, commercial decision", finance minister Arun Jaitley added. It would also be interesting to observe whether the government extends the same strategy to other ailing public sector banks.

Regarding the overseas operations of the banking sector, Kumar said rationalisation of operations is in full swing, and the government is keen to take steps so that history isn't repeated as far as non performing assets (NPAs) are concerned. "Its ability to increase and expand will be inevitable", he said. "We have made a decision to merge Dena Bank, Vijaya Bank and Bank of Baroda". When you make a merger, you want to make sure that the merged entity is a stronger entity. Besides Jaitley, the alternative mechanism includes defence minister Nirmala Sitharaman and railway minister Piyush Goyal. The combined entity is expected to retain the regional strength of Dena Bank and Vijaya Bank. The government will then prepare an amalgamation scheme for the banks, which will need to be approved by the cabinet and Parliament, Jaitley said.

P.S. Jayakumar, managing director and CEO of Bank of Baroda, said the merger would result in greater presence in the four southern states.

The new amalgamated bank will have a total business of more than Rs 14.82 lakh crore. The government had also moved to offload its majority stake in IDBI Bank to Life Insurance Corporation of India. "No employee will face a service condition that is in any way adverse to his present ones. The best of the service conditions will apply to all of them".

Arun Jaitley further added, "Restructuring and evergreening of loans led to a rise in NPAs".

"Capital Adequacy Ratio (of the amalgamated bank) at 12.25 per cent is significantly above the regulatory norm of 10.875 per cent and the stronger amalgamated bank will be better positioned to tap capital markets", the government said.

According to Rajiv Kumar, secretary, Department of Financial Services, the boards of all the three banks had already been advised by the government to consider the proposal, which will be taken soon.

When asked about the timing of this merger amid falling value of Indian rupee, the Finance Minister said the business in government doesn't come to a standstill even if you have global challenge of high crude oil prices and strengthening of USA dollar.

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