Bank of Baroda sinks on merger with smaller rivals

19 September, 2018, 01:03 | Author: Frank Williams
  • Dena Bank, Vijaya Bank and Bank of Baroda to be merged to form India's third largest bank

The central government's proposal to merge three public sector lenders is likely to be positive for Dena Bank and Vijaya Bank, and negative for Bank of Baroda. Rajiv Kumar, Department of Financial Services Secretary, announced that the decision was arrived at after meeting of the "alternative mechanism" which was set up during previous year to consider consolidation of the Indian Banking Sector.

Finance minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. "However, the merger of Vijaya Bank will strengthen BoB as it provides both diversification and scale and will be more or less neutral for the latter", the brokerage said.

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. 11 of the 21 public sector banks are operating under an emergency programme, supervised by Reserve Bank of India, which restricts fresh lending.

Rejecting Congress claim that the gross NPAs stood at Rs 2.5 lakh crore when the UPA exited power, he said that actual figure was Rs 8.5 lakh crore because of the indiscriminate and disproportionate lending during 2008 to 2014.

Given its status as the weakest bank, Dena Bank is expected to benefit the most of the merger.

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The government says the new entity will see "substantial rise in customer base, market reach, operational efficiency and wider bouquet of products and services for customers".

Dena Bank is now under the Prompt Corrective Action (PCA) framework and the bank has restrained from lending further loans. "No employee will face any service conditions which are adverse in nature".

The decision to merge the three banks came at a meeting held under the "alternative mechanism" framework that was drawn up past year to consider consolidation in banking. Shares of Vijaya Bank plunged 5.69 per cent to close at Rs 56.40.

"In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank".

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". In contrast, Dena Bank - the weakest of the lot - made huge gains in early trade and was up nearly 20 per cent at Rs 19.05.

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