The Narendra Modi government on Monday cleared the way for a long-pending proposal of a major consolidation of public sector banks by announcing the merger of Bank of Baroda, Vijaya Bank and Dena Bank, which bank veterans and market watchers called a ‘big, bold and intelligent’ step.
Amid the worry over falling rupee, rising fuel price and widening current account deficit, the decision to merge the three banks came as a surprise. The decision to merge the three banks was taken as a reform step to deal with sick PSU banks and mounting non-performing assets (NPAs).
Speaking of the decision, Finance Minister Arun Jaitley said that the banks were chosen keeping in mind that the merger of two strong banks with one weak bank will lead to a strong entity. The government said that with the merger of the three banks, the combined entity will become the third largest bank in the country — across all PSU and private sector banks.
Also read in Hindi: देना बैंक, विजया बैंक और BOB का होगा विलय, बनेगा देश का तीसरा सबसे बड़ा बैंक
Arun Jaitley also tried to allay fears of the employees of the three banks over their future, saying that no employee will face any service condition adverse to present conditions and that their interest will be protected. The government aims for a substantial rise in customer base, operational efficiency and a wider bouquet of products and services for customers after the merger.
Of the three banks, Dena Bank is the weakest bank with highest NPA ratio of 11.04% and lowest business of merely Rs 1.72 lakh crore as compared to 5.4% NPA and Rs 10.2 lakh crore worth business of Bank of Baroda and 4.10% NPA and Rs 2 lakh crore worth business of Vijaya Bank.
Giving details of the merger decision, Vijaya Bank MD and CEO Shankar Narayan said that the merger proposal will be put in front of the boards of the respective bank in coming 10 days and decisions will be taken respectively. He told CNBC-TV18 that the government was open to the idea of infusing growth capital if needed.
While the fine print of the amalgamation is yet to be decided, former executive of Bank of Baroda R K Bakshi said that it was a big, bold and intelligent move by the government. Speaking with CNBC-TV18, he said that while consolidation of the banks was being mulled since the early 2000s, the present government should be given credit for finally calling it.
Calling the combination of banks chosen for the amalgamation as intelligent, R K Bakshi said that it will lead to efficiency. As Bank of Baroda and Dena Bank are more prominent in the west, the consolidation of branches will be cost-effective, while Vijaya Bank will bring its strong south footprints.
R Gandhi, former deputy governor of the Reserve Bank of India, reiterated Bakshi’s views. He also told the news channel that it was an intelligent move to amalgamate one weak bank with two big banks. He said merging one weak and one strong bank would have had a negative impact.