Government proposes merger of Bank of Baroda, Vijaya Bank, Dena Bank; Here's all you need to know

The merger comes as a big relief for Dena Bank as it is one of 11 public sector banks (PSBs) which is not allowed to lend money till the time it overcomes its poor finance.

The amalgamation will be the first ever 3 way consolidation of banks in India which incorporates a total business of Rs 14.85 lakh crore. (Image: PTI)

The Finance Ministry on Monday cleared way for long-awaited proposal of major amalgamation of public sector banks by announcing the merge of Bank of Baroda (BoB), Vijaya Bank and Dena Bank into the country's third-largest bank. Commenting on the same, PS Jayakumar, Managing Director of BoB said that the merger may happen within four to six months. Soon after Finance Minister Arun Jaitley and Financial Services Secretary Rajeev Kumar announced the proposal, Jayakumar said, “Going by past practices, the merger may take four to six months. It can be speeded up also...it depends," Jayakumar told reporters after Finance Minister Arun Jaitley and Financial Services Secretary Rajeev Kumar announced the proposal here. Speaking to news agency ANI, A Anbarasu,Vice Pres,Financial Institutions Group, Moody’s Investors Service said, "GoI's plan to merge 3 public sector banks, Bank of Baroda, Vijaya Bank&Dena Bank will be credit positive as it'll provide efficiencies of scale&help improve quality of corporate governance for the banks." The merged entity will have a market share of about 6.8% by loans – according to data as of March 2018 -- making it the third largest bank in the system, she added further. The merger comes as a big relief for Dena Bank as it is one of 11 public sector banks (PSBs) which is not allowed to lend money till the time it overcomes its poor finance. As per the government, two relatively stronger banks (BoB and Vijaya Bank) will absorb the loss of weaker one. The amalgamation will be the first ever 3 way consolidation of banks in India which incorporates a total business of Rs 14.85 lakh crore. According to reports, the combined net NPA ratio will be at 5.71 per cent which is better than PSBs’ average of 12.13 per cent. “With the benefit of scale working in, with greater distribution and more opportunities for products for costumers etc., a reasonable assumption is that there will be good opportunity to come but it is something that will happen in due course,” news agency IANS quoted Jayakumar as saying. Financial Services Secretary Rajeev Kumar said the biggest beneficiary of the merger is the amalgamated entity and the banking industry, as it aims to get scale, synergy and reach for the benefit of the customers. “It is in tune with the sixth largest economy in the world. You need a global reach. Both Dena Bank and Vijaya Bank will get that global reach through BoB and BoB will get a much sounder credit culture in the Vijaya Bank. It's futuristic where you have large global banks,” Kumar said further. Experts believe that the latest move is part of the government’s initiative to reform its banking sector in order to create less but relatively strong banks with much larger balance sheets keeping in mind the growing credit requirement of the country.