Govt to merge BoB, Dena Bank and Vijaya Bank

The government Monday said state-owned Bank of Baroda, Vijaya Bank and Dena Bank will be merged to create the country's third largest lender as part of efforts to revive credit and economic growth.

The move follows top lender State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, catapulting it to be among top 50 global lenders.

Announcing the plan, Finance Minister Arun Jaitley said consolidation was always part of the government's agenda and the merger of associate banks last year was a step in that direction.

The decision taken by 'Alternative Mechanism' to amalgamate three banks would create a mega lender which will be stronger and sustainable.

The envisaged amalgamation will be the first-ever three-way consolidation of banks in India, with a combined business of Rs 14.82 lakh crore, making it the third largest bank after SBI and ICICI Bank.

Post this merger, the number of PSU banks will come down to 19.

"The consolidation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies," Jaitley said.

"Leveraging of networks, low-cost deposits and subsidiaries of the three banks have the potential of yielding significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers," he said.

The merged entity will have better financial strength, Financial Service Secretary Rajiv Kumar said, adding that its net NPA ratio will be at 5.71 per cent, significantly better than public sector bank (PSB) average (12.13 per cent).

Besides, Kumar said, Provision Coverage Ratio (PCR) would be better 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 average of 53.92 per cent.

Kumar further said the respective board would take approval in next 10-15 days and the entire merger process would be complete by the end of the current fiscal.

"If you go by the past experience and processes, it would take 4-6 months. But it can be speeded up...the combined entity will benefit from better CASA ratio of Dena Bank...," BoB Managing Director P S Jayakumar said.

Jaitley further said the amalgamation would be through share swap which will be the part of scheme of merger.

"The scheme of amalgamation, which will be formed, will be laid before Parliament," he said, adding no change in the banking law is required.

Giving rationale for the proposed merger, he said, "We have borne in mind that we do not want merger of relatively weak banks. You can have two well performing banks absorbing a third one and hopefully creating a mega bank which will be sustainable, whose lending ability will be far higher."