Government proposes merger of Bank of Baroda, Dena Bank and Vijaya Bank under Alternative Mechanism

The Union Finance Ministry on September 17, 2018, announced the proposal to merge three public sector lenders – Bank of Baroda, Dena Bank and Vijaya Bank. The combined lending entity will create India’s third-largest bank with a total business of more than Rs 14.82 lakh crore.

The announcement was made during a press conference by Rajeev Kumar, Secretary of Department of Financial Services, Union Ministry of Finance. The proposal will now need the approval of the boards of these individual banks. The banks’ boards will shortly meet and take up the decision, said the Finance Minister Arun Jaitley after Kumar’s statements.

The merger of these three state-owned banks is a part of the government’s agenda of consolidation of public sector banks. The consolidation was proposed by the Alternative Mechanism comprising Chairperson Arun Jaitley. Dena Bank, with gross NPA ratio of 22 per cent, is currently under the Prompt Corrective Action (PCA) framework and has been restrained from further lending. Dena bank would no longer be covered under PCA after amalgamation.

Vijaya Bank is among the better performing public sector banks with a gross NPA ratio of 6.9 per cent. The Bank of Baroda has a bad loan ratio of 12.4 per cent. The Bank of Baroda has a widespread network, while Dena Bank and Vijaya Bank are more regionally focused. The Global network strength of Bank of Baroda will be leveraged to enable customers of Dena Bank and Vijaya Bank to have global access. Dena Bank’s strength in the Micro, Small and Medium Enterprises (MSME) will further augment the strength of the other two banks to position the amalgamated bank for being an MSME Udyamimitra.

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