The government has announced that Bank Of Baroda, Vijaya Bank and Dena Bank will be merged into a single bank which will become India's third largest bank. The move follows top lender State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.
The government logic behind the proposed merger of three banks :
"Alternative Mechanism under FM (Finance Minister Arun Jaitley) suggests Bank of Baroda, Vijaya Bank and Dena Bank to consider amalgamation," Rajiv Kumar, Secretary, Department of Financial Services said. He said that the new entity is "positioned for substantial rise in customer base, market reach, operational efficiency and wider bouquet of products and services for customers."
The government has proposed the above merger with hope to achieve following objectives through this merger:
• The amalgamated bank would be the third largest bank in India.
• It will be a strong competitive bank with economies of scale.
• It will create synergies for network, low-cost deposits and subsidiaries.
• The merger will lead to a substantial rise in:
1. customer base
2. market reach
3. operational efficiency
4. Wider bouquet of products services for customers
• Employees interests will be protected.
• Brand equity to be preserved.
• All three banks are on Finacle CBS Platform.
• Capital support will be ensured.
The government expects the two relatively strong banks — BoB and Vijaya Bank — will easily absorb potential shock of amalgamating with a weak one.The latest move is part of the government’s efforts as part of its banking sector reforms to create a few but strong banks with much larger balance sheets to support the rising appetite for credit of the fast-growing economy and enable optimum utilisation of resources.
The merged entity has a combined business of Rs 14.8 lakh crore, deposits of Rs 8.4 lakh crore, gross advances of Rs 6.4 lakh crore, and 85,675 employees, based on the position as on June 30. The boards of these three banks are expected to meet in the next two weeks to consider the proposal and work out modalities.
Synergies of business portfolios, human resources, systems, reach and cultural fit will be key factors in the merger consideration.
The amalgamation process may take four to six months to complete, although no time frame has been fixed for it. The merged entity will be offered growth capital beyond what is required to meet regulatory needs.
Banks merger a progressive step:
Ficci: Industry body Ficci termed the government's decision to merge three state-owned banks as a progressive move, noting that it signifies the government's commitment to strengthen the banking sector. According to the chamber, the merger will lead to greater operational efficiencies and Dena Bank, Vijaya Bank and Bank of Baroda would benefit through a synergistic relationship that would leverage one another's network, customer base and access to low cost deposits.
Moody’s Investors Service on Tuesday 18th Sept.18 said the plan to merge Bank of Baroda, Vijaya Bank and Dena Bank will be credit positive as it would improve their efficiency and governance.The plan to merge three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank, will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks. Moody’s said BoB and Vijaya Bank have relatively better credit metrics than Dena Bank in terms of asset quality, capitalisation and profitability.
SCOPE Chairman: Ved Prakash, Chairman and Managing Director, MMTC, and Chairman, SCOPE said : Merger of PSUs needed to take on global competition.
Source: Economic Times, Business Line, Financial Express, LivMint