New Delhi: The Centre announced on Monday that three state-owned banks — Bank of Baroda, Vijaya Bank and Dena Bank — will be merged to create the country’s third largest lender, as part of its endeavour to create strong banks in the country.
This is the first-ever three-way consolidation of banks in India. It’s also a bid by the Narendra Modi government to revive credit growth, which has slowed to a multi-decade low as banks struggle with bad loans.
The merged entity will have a combined business of '14.82 lakh crores, with 10,000 branches and around 85,000 employees.
The “alternative mechanism” headed by finance minister Arun Jaitley, which includes his Cab-inet colleagues Piyush Goyal and Nirmala Sitharaman, decided at a meeting here on Monday that the amalgamation of the three banks be considered by their boards. Mr Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability.
The finance minister alleged that the banks undertook above-normal lending during the 2008-2014 period “as if there was no tomorrow”, resulting in huge non-performing assets to the tune of '8.5 lakh crores. “This took its toll on the economy,” he said. Mr Jaitley said that due to such huge non-performing assets, bank credit was down, impacting private investment in the country, and many banks were in a fragile condition. “This amalgamated entity will increase banking operations,” he said.
The finance ministry said consolidation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies.
The Centre said the plan was to merge a weak bank like Dena Bank with a strong bank so that the merged bank was a strong entity. The government has a majority stake in 21 lenders, which account for more than two-thirds of the banking assets in the country.
Dena Bank has a non-performing ratio of 11 per cent, Vijaya Bank 4.10 per cent and Bank of Baroda 5.40 per cent. The merged entity will have a NPA ratio of 5.71 per cent, which is better than the state-owned banks’ average of 12.13 per cent.
The merger proposal has to be approved by the boards of all the banks involved and the entire process is expected to be completed within four to six months.
The move to merge three public sector banks follows the State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.
Mr Jaitley said during the SBI merger no bank employee had lost his or her job. Similarly, in the proposed banks’ merger, “no employee will face service condition adverse to his/her present condition,” the finance ministry said in a statement.
Financial services secretary Rajeev Kumar said the government will continue to provide capital support to the merged bank.
