Vijaya, Dena, Bank of Baroda to be merged

Roman Schwartz
September 18, 2018

Capital support to the merged entity of Dena Bank, Vijaya Bank and BoB would be ensured, he said.

In October, the government set up an alternative mechanism comprising Jaitley, defence minister Nirmala Sitharaman and railways and coal minister Piyush Goyal, as an approval framework for proposals to merge state-run banks.

The decision to merge the three banks will first need to be approved by the board of directors of Bank of Baroda, Dena and Vijaya. Referring to the merger of five State Bank of India (SBI) associate banks, he said that it was done without any job losses.

File image of finance minister Arun Jaitley.

"The amalgamated entity would increase banking operations and its ability to go for further consolidation", he said. The government believes that the merger will improve the operational synergy of the three banks and is part of a plan to create larger Indian lenders instead of smaller entities vying for the same business.

"Two strong banks can absorb a third bank to create a globally competitive bank", the FM said adding that no employee will face any adverse service conditions after the amalgamation.

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He also stated that the proposed merger will have no negative impact on the employees as well as the customers of the respective banks. He also said there was a procedure to be followed with regard to the announcement. Around 9,500 branches are likely to be closed during the merger. "On the contrary, the SBI experience has been that among the merging and new entities, the best of the service conditions continue to apply to all of them", the minister said. "The merger of the three banks will make this the third largest in of the country", Financial Services Secretary Rajiv Kumar announced, while addressing a press conference. Stocks like Corporation Bank, IOB, Vijaya Bank are up 13-20 percent.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy.

"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. "Banks should be made strong and it will depend on process", he said.

Addressing the issue of Non-Performing Assets, union finance minitser Arun Jaitley attacking the UPA era said, "In last few years, PSBs have faced a challenge". After 2015, once the real picture was known through asset review by the RBI, both the govt and the RBI started taking corrective steps. The government had only unearthed the NPAs which were sought to be brushed under the carpet, he added.

Lending during the period increased from Rs 18 lakh crore to Rs 55 lakh crore and "the nature of lending was as if there was no tomorrow, and that took toll on banks as well as on the economy", he said.

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