Government Announces merger of Bank of Baroda, Vijaya Bank and Dena Bank

18 Sep
Government Announces merger of Bank of Baroda, Vijaya Bank and Dena Bank

The government on Monday announced its plan to merge three public sector banks (PSBs) to create the third largest lender of the country, as part of efforts to clean up the country's banking system.

Announcing the plan, Union Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments.

Many banks were in a fragile condition due to excessive lending and ballooning NPAs, he added.

"No employee will face any service conditions which are adverse in nature. The best of the service conditions will apply to all of them," Jaitley added.

The combined entity will have a strong presence across the nation with more than 34% of low-cost deposits, a capital buffer of nearly 12% and a business book of Rs 14.82 lakh crore. Bank of Baroda is the biggest of the three with Rs 10.29 lakh crore of total business, followed by Vijaya Bank at Rs 2.79 lakh crore and Dena Bank at Rs 1.72 lakh crore. “The government has suggested this to the banks to consider these proposals, and hopefully shortly the boards will meet and after adequate consultation will take a decision,” said finance minister Arun Jaitley. 

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-cost deposits and subsidiaries.

Financial services secretary Rajiv Kumar said bank boards of the three banks will examine the amalgamation proposal. "The merger will help improve operational efficiency and customer services."

The government will continue to provide capital support to the merged bank, Kumar added.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia’s third-biggest economy.

The proposed merger follows a similar move by the government in February last 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.