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

Gladys Abbott
September 18, 2018

A senior banker said that with the amalgamation announcement, the government may be moving a step closer to implementing the Narasimham Committee recommendation on structural reforms.

"This major decision was taken by [the] Alternative Mechanism today to amalgamate Bank of Baroda, Dena Bank and Vijaya Bank". Besides Jaitley, the alternative mechanism includes defence minister Nirmala Sitharaman and railway minister Piyush Goyal.

FM Arun Jaitley says merger will not only strengthen the banks, but also increase their lending ability.

Asked about the choice of banks, Mr. Jaitley said this was the government's assessment because one of the banks [Dena Bank] had been placed under the prompt corrective action framework. He said "no employee will face service condition adverse to his present condition" following the proposed merger of PSBs.

In this regard, Venkatachalam pointed out that State Bank of India's bad loan woes got exacerbated after it acquired five associate banks.

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Given that recovery from bad loans is the need of the hour, the unions' contention is that it will take a back seat once amalgamation between the three public sector banks is initiated as their top brass will be bogged down with the administrative nitty-gritties of consolidation.

Rajiv Kumar, Department of Financial Services Secretary at the Ministry of Finance, Government of India, said that the decision was arrived to create India's 3rd largest globally competitive bank.

Arun Jaitley further added, "Restructuring and evergreening of loans led to a rise in NPAs. And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said. "This took its toll on the economy", he said. "NPAs worth Rs. 8.5 lakh crore were shown to be Rs. 2 lakh crore", the Minister claimed. "The third is the internal economic decisions of the US, which are leading to further strengthening of the dollar", he added.

He said the NPA curve was now taking a turn and the time was opportune to go ahead with consolidation of banks. "With BOB forming the biggest chunk of the business (two-third), this scheme appears to create some headwinds for the bank", said Dhananjay Sinha, Head of Research, Economist and Strategist, Emkay Global Financial Services.

Provision coverage ratio of the combined entity will be at 67.5 per cent, higher than the PSB average of 63.7 per cent, and it will have a total of 9,489 branches.

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