Merger of Vijaya Bank, Dena Bank & Bank of Baroda announced

Oscar PerrySep 19, 2018

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. The boards of the banks would meet separately to clear the merger. Over the past three years, banks have seen a large chunk of their loan books turning sour, while demand for fresh loans has remained low. He further said that the employees of Dena Bank will benfit the most. The merged entity will have a combined business of Rs 14.82 lakh crore, with 10,000 branches and around 85,000 employees. Referring to the merger of five State Bank of India (SBI) associate banks, he said that it was done without any job losses.

"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.

Other mid-sized banks were trading higher on the expectations of more mergers and acquisition announcement in future. 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 past year to consider consolidation of the Indian Banking Sector.

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Finance minister Arun Jaitley said the government had been careful in not merging weak banks.

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. The government will continue to provide capital support to the merged bank, he added. "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. "With BOB forming the biggest chunk of the business (two-third), this scheme appears to create some headwinds for the bank", said Dhananjay Sinha, Head of Research, Economist and Strategist, Emkay Global Financial Services. LIC, which has been keen to acquire a bank for some time, has made an offer for IDBI Bank because it suited their interests. "This took its toll on the economy", he said. Vijaya Bank shares traded at Rs 60.55, up Rs 0.75 and Dena Bank shares traded at Rs 19.10, with a gain of Rs 3.15 on the BSE.

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