 "Arun Jaitley announces merger of Dena, Vijaya and Bank of Baroda; new entity to be country's third largest lender")
In an attempt to push ahead banking reforms, the government has decided to merge Dena Bank, Vijaya Bank and Bank of Baroda making it the third largest bank of the country with a combined market cap of Rs 48,000 crore. Making the announcement, Rajiv Kumar, Financial Services Secretary said, “We have decided to merge Dena Bank, Vijaya Bank and Bank of Baroda. The merger of the three banks will make this the third largest bank of the country”
The boards of the three banks will examine the amalgamation proposal, said Kumar. The government will continue to provide capital support to the merged bank, he added. The three banks will continue to work independently post merger. Referring to the merger of five State Bank of India (SBI) associate banks, he said that it was done without any job losses. Top lender State Bank of India last year merged with five of its subsidiary banks and took over Bharatiya Mahila Bank, catapulting it to be among top 50 global lenders. [caption id=“attachment_5191911” align=“alignleft” width=“380”]  File image of finance minister Arun Jaitley. Reuters.[/caption] Regarding the overseas operations of the banking sector, Kumar said rationalisation of operations is in full swing, and the government is keen to take steps so that history isn’t repeated as far as non performing assets (NPAs) are concerned. At a press conference after the announcement, Union Finance Minister Arun Jaitley said the ‘major economical banking decision’ was taken to make weaker banks stronger with the merger. “This is the government’s assessment,” he said, referring to the merger. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments. Many banks were in a fragile condition due to excessive lending and ballooning NPAs. “This amalgamated entity will increase banking operations,” he said, of the merger of the three banks. He also said there was a procedure to be followed with regard to the announcement. “When you make a merger, you want to make merged entity stronger. After the government in principle makes this opinion, it suggests to the banks to consider it and we await the bank’s consideration of it,” he said. The government had made a mention of consolidation of banks earlier, Jaitley said. He referred to the government’s announcement in the budget where it had said consolidation of banks was on their agenda. This is a first step towards it, he said of the announcement.
In response to a query regarding the impact to the regional identity of the three banks, Jaitley said it would continue to expand region-wise post-the announcement. “I don’t see their operations anything but expanding,” he said, citing the government’s experience with State Bank of India (SBI). Jaitley also clarified that no employee will face any service conditions which are adverse in nature. The best of the service conditions will apply to all of them, he said. Merged entity to have better financial strength, says financial service secretary 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). Besides, Kumar said, Provision Coverage Ratio (PCR) would be better at 67.5 percent against average of 63.7 percent and cost to income ratio of the combined entity would come down to 48.94 percent as compared to average of 53.92 percent. The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia’s third biggest economy. But these PSU banks also account for the lion’s share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.
Jaitley slams UPA over NPA crisis Jaitley said that the public sector banks have made a big contribution in the country. He referred to the two tranches given to the sector as part of recapitalisation. “Banks should be made strong and it will depend on process,” he said. Jaitley laid the blame on the UPA for the banking sector non-performing asset (NPA) issue. He said the real picture of the NPA issue was known only in 2015. “The UPA had swept the NPAs under the carpet, he said.
Impact Shorts
More ShortsPointing out that indiscriminate lending during 2008-14 was the reason for the weak health of the banking sector, the finance minister said various steps taken by the government have started showing results. Lending during the period increased from Rs 18 lakh crore to Rs 55 lakh crore and “the nature of lending was as if there was no tomorrow, and that took toll on banks as well as on the economy”, he said. With inputs from PTI
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