Centre merges Bank of Baroda, Vijaya Bank, Dena Bank

Centre merges Bank of Baroda, Vijaya Bank, Dena Bank

The Narendra Modi-led NDA government has made a decision to merge three nationalised banks together, Financial Services Secretary Rajiv Kumar announced on Monday. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments.

"No employee would face adverse service conditions due to the merger", he added. This will create the country's third-largest bank, and capital support will be provided to the merged entity by the government.

Last year, top lender State Bank of India was also merged with five of its subsidiary banks.

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

He said the NPA curve was now taking a turn and the time was opportune to go ahead with consolidation of banks.

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The central government on Monday proposed to create the country's third-largest bank by amalgamating Mumbai-based Dena Bank and Bengaluru-based Vijaya Bank with much larger Bank of Baroda (BoB) in an all-stock deal. "Meanwhile, given persistent structural challenges facing mid-sized banks, we continue to maintain our cautious stance (despite trading gains in the immediate term)", said Edelweiss Securities in a recent note to its investors. "The best of the service conditions will apply to all of them". Till then, the three banks will carry on functioning independently. In contrast, Dena Bank - the weakest of the lot - made huge gains in early trade and was up nearly 20 per cent at Rs 19.05.

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.

Government owns a majority stake in 21 lenders, which account for more than two-thirds of banking assets. "On the other hand, it has resulted in closure of branches, increase in bad loans, reduction of staff, reduction in business etc", said C H Venkatachalam, general secretary, AIBEA.

The grapevine was working overtime Tuesday, and Uco Bank was at the centre of the speculative talk.

The Minister added that this indiscriminate lending of nature "as if there was no tomorrow" took a toll on the economy, which was followed by evergreening of loans and brushing the 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.

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