Dena, Vijaya, BoB to merge and form country’s 3rd largest bank

Three banks merger

Is it going to do any good for the industry and the three banks?

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

He also informed that the RBI was also consulted before the proposal.

Arun Jaitley, Finance Minister of India briefed the media and said that the merger has been conceived in such a way that the combined lender will not end up being weaker than the existing individual entities. "Its ability to increase and expand will be inevitable", he said. "The merger of the three banks will make this the third largest in of the country", Financial Services Secretary Rajiv Kumar announced, while addressing a press conference.

"Capital Adequacy Ratio (of the amalgamated bank) at 12.25 per cent is significantly above the regulatory norm of 10.875 per cent and the stronger amalgamated bank will be better positioned to tap capital markets", the government said. The meeting chaired by Jaitley was attended by Ministers Piyush Goyal and Nirmala Sitharaman.

The government had consultations with the Reserve Bank of India on the merger, Jaitley said. The combined entity is expected to retain the regional strength of Dena Bank and Vijaya Bank.

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The plan to merge the three banks was taken by a ministerial panel, led by Finance Minister Arun Jaitley Monday.

Bank of Baroda shares fell over 11 per cent after earlier losing as much as 11 per cent in Tuesday's trade after the government announced its merger with smaller peers Dena Bank and Vijaya Bank, both of which gained.

Last year, top lender State Bank of India was also merged with five of its subsidiary banks.

Apart from IDBI Bank and Dena Bank, the nine other banks now under the RBI's PCA framework are Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.

"No employee will face any service conditions which are adverse in nature. With BOB forming the biggest chunk of the business (two-third), this scheme appears to create some headwinds for the bank", said Dhananjay Sinha, Head of Research, Economist and Strategist, Emkay Global Financial Services.

Banking sector reforms are a major plank of Prime Minister Narendra Modi's administration to revive credit growth, which has slowed to multi-decade lows as banks struggle with bad loans.

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