After the merger of five associate banks of State Bank of India, the government has now moved ahead with another major consolidation. The government has announced the merger of three public sector banks – Bank of Baroda, Vijaya Bank and Dena Bank – to create third largest bank in the country in terms of total business.
This move will be a consolidation of two strong and a weak bank, with Dena Bank currently under Reserve Bank of India’s Prompt Corrective Action (PCA) framework, which implies that it cannot extend fresh loans.
While announcing the decision, Finance Minister Arun Jaitly said, “Nobody should have a worry because this amalgamated entity will increase the banking operations. Its ability to increase and expand will be inevitable.”
What is important to note is this merger is coming at a time when the banking sector is dealing with huge non-performing assets (NPAs) and the government and banking industry are looking for ways to clean up. According to media reports, the combined entity will have net NPA ratio of 5.71 per cent, as compared to net NPA ratio of 11.04 per cent of Dena Bank, 5.40 per cent of Bank of Baroda and 4.10 per cent of Vijaya Bank.
Financial services secretary Rajiv Kumar said the move will help improve operational efficiency and customer services.
The merger of five associate banks of State Bank of India and Bharatiya Mahila Bank was successfully completed last year.