Published: Wed, September 19, 2018
Markets | By Erika Turner

Dena, Vijaya, BoB to merge and form country’s 3rd largest bank

Dena, Vijaya, BoB to merge and form country’s 3rd largest bank

Bank of Baroda shares fell over 11 per cent after earlier losing as much as 11 per cent in Tuesday's trade after the government announced its merger with smaller peers Dena Bank and Vijaya Bank, both of which gained.

Jaitley said the merger would create a sustainable mega-bank which would be third largest in the country.

Past year on 21 August 2017, Finance Minister Arun Jaitley has announced that Union cabinet gave an in-principle nod for public sector bank merger and consolidation. This effort is also going to increase the banks' lending ability.

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. Referring to the merger of five State Bank of India (SBI) associate banks, he said that it was done without any job losses.

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

As was in case of SBI, no employee of the three banks would have service conditions that are averse to their present one. "Meanwhile, given persistent structural challenges facing mid-sized banks, we continue to maintain our cautious stance (despite trading gains in the immediate term)", said Edelweiss Securities in a recent note to its investors. "The best of service conditions will apply to all of them", Jaitley added.

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"Though the consolidation move itself is negative and ushers in uncertainty, the proposed merger of Dena with stronger Vijaya is relatively better for BoB. And therefore, now the alternative mechanism has gone ahead and taken this decision today", Jaitley said. The gross NPA ratio now stands at 22 percent which is the highest in the banking industry.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third biggest economy. As a result, the share of bad loans as a percentage to total loans has been rising.

This is not the first time a bank amalgamation process has taken place.

The Minister added that this indiscriminate lending of nature "as if there was no tomorrow" took a toll on the economy, which was followed by evergreening of loans and brushing the NPAs under the carpet.

"It was only after 2015 that the real picture was known and the government and the RBI started taking concrete steps".

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