New banking giant: Govt to merge BoB, Dena & Vijaya

  • New banking giant: Govt to merge BoB, Dena & Vijaya

New banking giant: Govt to merge BoB, Dena & Vijaya

New Delhi/Mumbai The government's decision on Monday to merge three banks it owns-Bank of Baroda, Dena Bank and Vijaya Bank-is expected to reduce the amount of capital it needs to pump into these lenders and help clean their balance sheets. "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.

But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.

"Two strong banks can absorb a third bank to create a globally competitive bank", the FM said adding that no employee will face any adverse service conditions after the amalgamation.

The three banks will continue to work independently post-merger.

"Boards of the three banks will examine amalgamation proposal".

The proposed merger follows a similar move by the government in February previous year when it merged State Bank of India with its five subsidiary banks, helping the country's largest lender by assets increase its scale and cut expenses through synergies. When you make a merger, you want to make sure that the merged entity is a stronger entity.

The same was the case when the erstwhile Global Trust Bank (a private sector bank) was merged with Oriental Bank of Commerce (a public sector bank) in 2004.

Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments.

He added that the government would now await the response of the banks to the proposal. "The best of the service conditions will apply to all of them".

Jaitley said the government took a series of steps to tackle the NPA challenge including the Insolvency and Bankruptcy Code "which was a defining moment in creditor-debtor relationship". Therefore, our capacity to subsume that weaker bank into the merged entity, which will be a stronger bank, is the principal factor that weighs with the government. "At a time when we need more branches and financial inclusion, the amalgamation will lead to closure of branches, which is not good for the development of the country and is anti-people", said CH Venkatachalam, General Secretary, All India Bank Employees' Association.

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. He said the real picture of the NPA issue was known only in 2015.

Pointing out that indiscriminate lending during 2008-14 was the reason for the weak health of the banking sector, the finance minister said various steps taken by the government have started showing results. During the UPA regime, the banks had not reported NPAs of just Rs 2.50 lakh crore, thereby concealing the seriousness of the problem.