Centre merges Bank of Baroda, Vijaya Bank, Dena Bank

Daniel Fowler
September 18, 2018

New Delhi, July 27 () Public sector lender Bank of Baroda today reported a more than two-fold jump in net profit at Rs 528.26 crore for the first quarter of 2018-19 as provisions for bad loans dropped.

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.

Making the announcement, Rajiv Kumar, Financial Services Secretary said, "We have chose to merge Dena Bank, Vijaya Bank and Bank of Baroda".

Jaitley said the government took a series of steps to tackle the NPA challenge including the Insolvency and Bankruptcy Code "which was a defining moment in creditor-debtor relationship". "On the contrary, the SBI experience has been that among the merging and new entities, the best of the service conditions continue to apply to all of them", the minister said.

On the reason of choosing these three banks for merger, Jaitley said that one of the bank (Dena Bank) was on RBI's Prompt Corrective Action (PCA) list and other two banks have the strength to subsume a weaker bank. "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.

India's decision to merge the three banks will first need to be approved by the board of directors of Bank of Baroda, Dena and Vijaya.

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"Nobody should have a worry because this amalgamated entity will increase the banking operations".

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.

The move follows top lender State Bank of India previous year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.

Citing the merger of SBI'e entities, FM said that it will benefit the working conditions of the employees of smaller banks. He said "no employee will face service condition adverse to his present condition" following the proposed merger of PSBs. When you make a merger, you want to make sure that the merged entity is a stronger entity.

"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. He referred to the two tranches given to the sector as part of recapitalisation. "The UPA had swept the NPAs under the carpet, he said. The government is keen to take steps so that history isn't repeated as far as NPAs are concerned", he added. "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said.

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