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

Ann Santiago
September 19, 2018

The Centre has chose to merge three state-run banks - Bank of Baroda (BoB), Dena Bank and Vijaya Bank - which will create the third-largest lender in the country.

Making the announcement, Rajiv Kumar, Financial Services Secretary said, "We have made a decision to merge Dena Bank, Vijaya Bank and Bank of Baroda".

Finance Minister Arun Jaitley announced the merger proposal at a press conference saying that the respective boards of the three banks have been directed to consider the proposal at the earliest. Many in the market believe that the stressed lender could be merged with banks in the South.

Moreover, all the three banks work on the same technological platform, which eases integration and the banks will also enjoy complementary geographies as Bank of Baroda has a stronghold in the western part of India while Vijaya Bank is strong in the south. Over the past three years, banks have seen a large chunk of their loan books turning sour, while demand for fresh loans has remained low.

The merger comes in following the completion of State Bank of India and its associated banks during 2017.

Last yera, top lender State Bank of India was merged with five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.


Jaitley said the government took a series of steps to tackle the NPA challenge including the Insolvency and Bankruptcy Code "which was a defining moment in creditor-debtor relationship". "The best of the service conditions will apply to all of them".

"Though the consolidation move itself is negative and ushers in uncertainty, the proposed merger of Dena with stronger Vijaya is relatively better for BoB". BoB shares declined 10% to Rs 122 while Vijaya Bank's stock rose 3.3% and Dena Bank surged 20% to Rs 19.10.

The government owns majority stakes in 21lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy. But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.

"This was accompanied by sweeping the NPAs below the carpet so that the real picture doesn't come out", Jaitley added.

Pointing out that indiscriminate lending during 2008-14 was the reason for the weak health of the banking sector, the finance minister said various steps taken by the government have started showing results. "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said.

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