New banking giant: Govt to merge BoB, Dena & Vijaya

18 September, 2018, 07:27 | Author: Billie Castillo
  • Arun Jaitley

Modi government on Monday proposed merger of Dena bank, Vijaya Bank and Bank of Baroda into one entity.

Bank unions say they will oppose the proposed amalgamation between Bank of Baroda, Dena Bank and Vijaya Bank, claiming the move is anti-people and will not help solve the bad loan problem facing the banking system.

"Alternative mechanism under Finance Minister, Arun Jaitley suggests bankofbaroda, VijayaBankIndia & dena_bank to consider amalgamation; to create India's 3rd largest globally competitive bank", he tweeted on Monday evening. The Bank of Baroda's bad loan ration now stands at 12.4 percent.

The three banks will continue to work independently post merger.

Given that recovery from bad loans is the need of the hour, the unions' contention is that it will take a back seat once amalgamation between the three public sector banks is initiated as their top brass will be bogged down with the administrative nitty-gritties of consolidation. Top lender State Bank of India a year ago merged with five of its subsidiary banks and took over Bharatiya Mahila Bank, catapulting it to be among top 50 global lenders. The branch network of the combined entity will be almost 9,500.

The new amalgamated bank will have a total business of more than Rs 14.82 lakh crore. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments.

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When asked about the timing of this merger amid falling value of Indian rupee, the Finance Minister said the business in government doesn't come to a standstill even if you have global challenge of high crude oil prices and strengthening of U.S. dollar. "This amalgamated entity will increase banking operations", he said, of the merger of the three banks. "No employee will face a service condition that is in any way adverse to his present ones".

The PSU banks are in news today ahead of merger of Bank of Baroda with Dena Bank & Vijaya Bank.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third-biggest economy. The associate banks made a loss of ₹5,792 crore for the March quarter of 2016-17 and ₹10,243 crore for the entire year.

The merged entity will have better financial strength, Financial Service Secretary Rajiv Kumar said, adding that its net NPA ratio will be at 5.71 per cent, significantly better than public sector bank (PSB) average (12.13 per cent). "Real picture of Non Performing Assets (NPAs) was only known in 2015, the UPA had swept NPAs under the carpet". The banking industry was saddled with bad loans - called non-performing assets in banking parlance - of Rs 8.50 lakh crore.

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

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