Govt proposes merger of Bank of Baroda, Dena and Vijaya Bank

Bank Merger

Bank Merger

Reacting on the proposal of merger, the FM said that the government had announced in the Union Budget that consolidation of banks will be on the agenda of the government.

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

Regarding the overseas operations of the banking sector, Kumar said rationalisation of operations is in full swing, and the government is keen to take steps so that history isn't repeated as far as non performing assets (NPAs) are concerned.

File image of finance minister Arun Jaitley.

This is the second such exercise in the last 18 months. In the previous such mega merger, five associate banks and the Bharatiya Mahila Bank became part of the state-run State Bank of India on April 1, 2017, making the country's largest lender among the world's top 50 banks.

As was in case of SBI, no employee of the three banks would have service conditions that are adverse to their present one. The best of the service conditions will apply to all of them, he said.

As a backgrounder to the decision, Mr Jaitley added that the PSBs were too many in number and saw "peak lending" of Rs 55 lakh crore between the years 2008 to 2014.

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Arun Jaitley further added, "Restructuring and evergreening of loans led to a rise in NPAs". Calling it unwarranted, they said it was the government's diversionary tactic to take the focus away from the huge levels of bad loans. He said the real picture of the NPA issue was known only in 2015.

The idea of amalgamation was proposed by a Cabinet-approved Alternative Mechanism on bank mergers comprising Jaitley, Railways Minister Piyush Goyal and Defence Minister Nirmala Sitharaman after a meeting Monday. "The third is the internal economic decision of the U.S., which are leading to further strengthening of dollar", he added.

Kumar talked about various steps the government had taken to clean banking including the Insolvency and Bankruptcy Code (IBC).

"Over time, this (merger) will strengthen the global positioning of Indian banks, but there will be a considerable transition period for this", said Sujan Hajra, chief economist and head of research at Mumbai-based broker Anand Rathi.

It added that the consolidation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies. 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.

The new bank is expected to have a net non-performing asset ratio of 5.71 percent of its total assets, almost 9,500 bank branches and 85,675 employees.

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