NEW DELHI: In a surprise move aimed at reviving the stressed banking sector through consolidation, the government on Monday proposed amalgamation of Bank of Baroda, Dena Bank and Vijaya Bank. This will create India’s third largest bank after SBI and ICICI Bank, the government said, adding that the merged entity will have total business to the tune of Rs 14.82 lakh crore.
“Consolidation of banks was in our agenda and the first step has been announced,” Finance Minister Arun Jaitley told reporters here on Monday. Dena Bank has been placed under the prompt corrective action framework by the Reserve Bank of India with restrictions on lending, while Vijaya Bank is among the only two lenders to have reported a profit in 2017-18.
“Two strong banks can absorb a third bank to create a globally competitive bank,” the FM said adding that no employee will face any adverse service conditions after the amalgamation. According to Rajiv Kumar, secretary, Department of Financial Services, the boards of all the three banks had already been advised by the government to consider the proposal, which will be taken soon.
The government has not given any timeframe for the merger but experts feel it could take six months to one year.“I do not know how long it will take but if you go by past experiences, it would take probably four to six months. It can be speeded up also,” Bank of Baroda Managing Director and Chief Executive Officer P S Jayakumar told TNIE.
DFS secretary Rajiv Kumar said there is no need to amend the Bank Nationalization Act. The scheme of amalgamation will be tabled in Parliament. Meanwhile, All India Bank Employees’ Association has opposed the move saying what is required is expansion of banks and not merger of banks. “We have seen the example of the five associate banks merging with State Bank of India. No miracle has happened. On the other hand, it has resulted in closure of branches, increase in bad loans, reduction of staff, reduction in business etc,” said C H Venkatachalam, general secretary, AIBEA.
Making sense of the amalgamation
The amalgamation exercise will likely be completed in 4-6 months.
All three banks are likely to lose their brand names and the name of the new entity will be decided later.
The government expects the amalgamated bank to have stronger financial muscle with net NPA ration of 5.71 per cent, which is much better than the average of 12.13 per cent.
The new bank is expected to have an advances base of Rs 6.4 lakh crore, deposit base of Rs 8.41 lakh crore, 9500 bank branches and a total of 85,675 employees.