The government last Monday announced the merger of three state-run banks — Dena Bank, Vijaya Bank and Bank of Baroda — that will make it the country’s third-largest bank with a combined business of Rs 14.82 lakh crore.
In a stock exchange filing, Dena Bank, the smallest of the three banks proposed to be merged, said the consolidation would enable creation of a bank with business scale comparable to global banks and capable of competing effectively in India and globally.
Dena Bank has a total business size of Rs 1.73 lakh crore and is also under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI) on account of its high non-performing assets (NPAs), or bad loans, which for the Indian banking system as a whole have crossed the staggering level of Rs 10 lakh crore.
“To be more efficient in the changing environment, the banks in the public sector space need to be bigger to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the exchequer.
“Consolidation would enable creation of a bank with business scale comparable to global banks and capable of competing effectively in India and globally,” the filing said.
“Amalgamation of our Bank with Bank of Baroda and Vijaya Bank would result in a strong amalgamated bank, equipped with financial cushion to deal with post-amalgamation requirements during the stabilisation phase.”
While making the merger proposal last week, Finance Minister Arun Jailtey said the consolidated entity’s capacity to absorb a weaker bank guided the decision “to propose this merger to the boards”.
The government said the amalgamated entity will have a net NPA ratio at 5.71 per cent, which is significantly better than the public sector banks’ (PSBs) average of 12.13 per cent, and declining further.
“The combined business of amalgamated entities would make it second-largest PSB of the country,” Dena Bank said.
This is the second such exercise in the last 18 months. In the previous mega merger, five associate banks and the Bharatiya Mahila Bank became part of the state-run State Bank of India on April 1, 2017, making the country’s largest lender among the world’s top 50 banks.