Merger of Vijaya Bank, Dena Bank & Bank of Baroda announced
18 September, 2018, 07:30
The government said on Monday announced a plan to merge three state-run banks. "The boards of Vijaya Bank, Dena Bank and Bank of Baroda have been advised by the alternate mechanism (the ministerial panel) to consider the proposal (for consolidation)", financial services secretary Rajiv Kumar said at a press conference.
In a surprise move aimed at reviving the stressed banking sector through consolidation, the government on Monday proposed amalgamation of Bank of Baroda, Dena Bank and Vijaya Bank.
But these banks also account for the lion's share of more than $150 billion in sour assets plaguing the sector, and need billions of dollars in new capital in the next two years to meet global Basel III capital norms.
Individual boards of each of the three banks will have to approve the merger.
The amalgamated bank would be the third largest bank in India and will be strong competitive lender with economies of scale, he said adding the three would have synergies for network, low-priced deposits and subsidiaries.
India introduced a new insolvency process in 2016 to speed up debt recoveries and restructurings, and in February 2017 approved the merger of State Bank of India (SBI) with its five subsidiary banks, helping the country's largest lender by assets cut expenses. When you make a merger, you want to make sure that the merged entity is a stronger entity.
"But a lot will depend on the management of the larger entity and what the synergies will be", he said. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments. "This amalgamated entity will increase banking operations", he said, of the merger of the three banks. "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.
He added,"No employee will face any service conditions which are adverse in nature".
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). The associate banks made a loss of ₹5,792 crore for the March quarter of 2016-17 and ₹10,243 crore for the entire year. The government had only unearthed the NPAs which were sought to be brushed under the carpet, he added.
As a backgrounder to the decision, Mr. Jaitley added that the PSBs were too many in number and bank lending stood at Rs. 55 lakh crore by 2014.
"It was only after 2015 that the real picture was known and the government and the RBI started taking concrete steps". "This is the government's assessment", he said, referring to the merger. "NPAs worth Rs. 8.5 lakh crore were shown to be Rs. 2 lakh crore", the Minister claimed.
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