BoB, Vijaya Bank approve merger proposal to create second largest PSU lender

The boards of state-run Bank of Baroda (BoB) and Vijaya Bank Saturday gave in-principle approvals for their amalgamation with another lender Dena Bank, a move that would create the second-largest entity in the PSU banking space.

Earlier this month, the government announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank to create the country's second-largest PSU lender by assets and branches.

The board of directors of the bank at their meeting decided to give its 'in-principle approval' for amalgamation of Vijaya Bank and Dena Bank with Bank of Baroda and commence the process for the same, subject to applicable approvals, Bank of Baroda said in a regulatory filing.

Similarly, Vijaya Bank's board gave its in-principle approval for amalgamation in line with the Finance Ministry's proposal of September 17.

"Amalgamation would enable creation of a bank with business scale comparable to global banks and capable of competing effectively in India and globally," Vijaya Bank said.

Greater scale and synergy would lead to cost-benefit, higher productivity and efficiency of the banking system as a whole, it said.

In addition, it would provide an impetus for building banks with scale, ramping up credit growth, adoption of best practices across amalgamating entities for cost efficiency and improved risk management and financial inclusion through wider reach, it said.

Post-merger, the asset size of the new entity would be over Rs 14.5 lakh crore.

The combined business of amalgamated entities would make it the second-largest public sector bank of the country, it said.

While announcing the merger, financial services secretary Rajiv Kumar had said the merged entity would have better financial strength.

Dena Bank's net NPA ratio will be at 5.71 per cent, significantly better than public sector banks' average of 12.13 per cent, he had said, adding so would be the provision coverage ratio at 67.5 per cent against average of 63.7 per cent and cost to income ratio of the combined entity would come down to 48.94 per cent as compared to an average of 53.92 per cent.

The amalgamation of the three banks would be through share swap which will be the part of the scheme of merger.

In April 2017, State Bank had merged with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, catapulting it to be among top 50 global lenders with over USD 550 billion in combined assets.

Post-merger of BoB, Vijaya Bank and Dena Bank, the number of PSU banks will come down to 19.