Published: Tue, September 18, 2018
Economy | By

Government to merge Bank of Baroda, Vijaya Bank, Dena Bank

Government to merge Bank of Baroda, Vijaya Bank, Dena Bank

Industry body Ficci Monday termed the government's decision to merge three state-owned banks as a progressive move, noting that it signifies the government's commitment to strengthen the banking sector. The proposed merger follows a similar move by the government in February previous year when it merged State Bank of India (SBI) with its five subsidiary banks, helping the country's largest lender by assets increase its scale and cut expenses through synergies.

File image of finance minister Arun Jaitley.

"This amalgamated entity will increase banking operations", he said.

Finance minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. "This is the government's assessment", he said, referring to the merger.

Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments. "The merger will help improve operational efficiency and customer services". "There are also a number of legal steps to be done", he said. "When you make a merger, you want to make merged entity stronger". He referred to the government's announcement in the budget where it had said consolidation of banks was on their agenda.

In response to a query regarding the impact to the regional identity of the three banks, Jaitley said it would continue to expand region-wise post-the announcement. "I don't see their operations anything but expanding", he said, citing the government's experience with State Bank of India (SBI).

"No employee would face adverse service conditions due to the merger", he added. The best of the service conditions will apply to all of them, he said.

Cost to income ratio of the amalgamated entity is estimated at 48.94 per cent, better than the PSB average of 53.92 per cent, while its Capital Adequacy Ratio at is estimated at 12.25 per cent, higher than regulatory requirement. What also needs to be seen is whether the merger will be effective in wiping out the mountain of bad loans that now weighs down the performance of nearly all public sector banks. He referred to the two tranches given to the sector as part of recapitalisation.

With State Bank of India earlier acquiring five of its associate banks and Life Insurance Corporation in the process of taking over IDBI Bank, the amalgamation of Dena Bank would still leave the government with nine more banks on a weak wicket.

Jaitley blamed the UPA government for indiscriminate lending, which led to the massive rise in stressed assets in the banking sector. So that the real picture does not come out.

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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