New entity post banks' merger to be operational from April 1

The new entity to be formed with the merger of Bank of Baroda, Vijaya Bank and Dena Bank will be operational in the beginning of the next financial year, sources said.

These three state-run banks would work on strict timeline and necessary regulatory process is expected to be over by the end of 2018-19, they said adding that the merged entity should be operational from April 1, 2019.

The scheme of the amalgamation will be formed subsequent to board meetings of the banks this month. The scheme will have various details including share swap ratio and requirement of capital from the promoter, sources said.

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.

On Monday, 'Alternative Mechanism' (AM) headed by Finance Minister Arun Jaitley decided to merge three banks with a view to create global size lender which will be stronger and sustainable.

The finance minister assured capital support to the merged entity. Other members of AM included Railway Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.

The merged entity will have a combined business of Rs 14.82 lakh crore, making it the third largest bank after SBI and ICICI Bank.

It will have better financial strength. The net NPA ratio will be at 5.71 per cent, significantly better than public sector bank (PSB) average (12.13 per cent).

Besides, 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.

Capital Adequacy Ratio (CAR) at 12.25 per cent will be significantly above the regulatory norm of 10.87 per cent, and stronger amalgamated bank will be better positioned to tap capital markets.