Merger of BoB, Vijaya, Dena Bank to improve efficiency, governance: Moody's

Andrew Cummings
September 18, 2018

Asked about the choice of banks, Mr. Jaitley said this was the government's assessment because one of the banks [Dena Bank] had been placed under the prompt corrective action framework. The newly merged entity would be the third largest bank of the country, said Financial Services Secretary Rajiv Kumar.

"The Alternative Mechanism took the view that aspirations of the fastest-growing economy have to be supported by stronger and globally competitive banks with increased choices to the stakeholders".

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.

The idea of amalgamation was proposed by a Cabinet-approved Alternative Mechanism on bank mergers comprising Jaitley, Railways Minister Piyush Goyal and Defence Minister Nirmala Sitharaman after a meeting Monday.

"No employee will face any service conditions which are adverse in nature".

"It is a major economic, commercial decision", finance minister Arun Jaitley added. 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 previous year to consider consolidation of the Indian Banking Sector.

Notably, this would be the second big merger in the banking sector after the merger of SBI associate banks with the SBI. They were large in numbers and 2008-2014 became a peak lending period.

He said the RBI's asset review in 2015 revealed the total NPAs were actually to the tunes of Rs 8.5 lakh crore, not Rs 2.5 lakh crore. "That took a toll on the economy". "The third is the internal economic decisions of the US, which are leading to further strengthening of the dollar", he added.

"The envisaged amalgamation will be the first-ever three-way consolidation of banks in India, with a combined business of Rs 14.82 lakh crore, making it India's third largest bank", an official statement said. The gross NPA ratio now stands at 22 percent which is the highest in the banking industry.

Moody's Investors Service Tuesday 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.

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