18-Sep-2018: Bank of Baroda, Vijaya Bank and Dena Bank to be merged

The government proposed the merger of three banks — Bank of Baroda, Vijaya Bank and Dena Bank —aimed at creating the country’s third-biggest lender. That’s seen as preparing the ground for consolidation among the remaining 17 state-owned lenders that have been a drain on the exchequer and marking the next big move in banking reforms. The boards of the three banks will now consider the proposal.

The combined entity will have a strong presence across the nation with more than 34% of low-cost deposits, a capital buffer of nearly 12% and a business book of Rs 14.82 lakh crore. Bank of Baroda is the biggest of the three with Rs 10.29 lakh crore of total business, followed by Vijaya Bank at Rs 2.79 lakh crore and Dena Bank at Rs 1.72 lakh crore. The government has suggested this to the banks to consider these proposals, and hopefully shortly the boards will meet and after adequate consultation will take a decision.

The government is seeking to ensure that there is no merger of relatively weak banks and that it has held talks with the Reserve Bank of India. 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. Nobody should have a worry because this amalgamated entity will increase banking operations.  Merged entity's ability to increase and expand will be inevitable.

Previously, the government had pushed through consolidation of the State Bank of India group, with SBI absorbing five associate banks and Bharatiya Mahila Bank. That process was completed last year.

The finance ministry stated that the provision coverage ratio (PCR) of the proposed amalgamated entity will be 67.5%, well above the average of public sector banks (PSBs) at 63.7%. The capital adequacy ratio of the combined entity would be at 12.25%, significantly above the regulatory norm of 10.875% and it would be better positioned to tap capital markets.