Centre seeks RBI inputs for merger of public sector banks

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New Delhi | Published: December 18, 2018 12:57:14 AM

The merged entity will have a combined business of Rs 14.8 lakh crore, deposits of `8.4 lakh crore, gross advances of Rs 6.4 lakh crore and 85,675 employees, based on the position as of June 30.

Centre seeks RBI inputs for merger of public sector banks

Seeking to expedite the bank consolidation process, the government has sought inputs from the Reserve Bank of India (RBI) on certain regulatory aspects of the proposed amalgamation of state-run Bank of Baroda (BoB), Vijaya Bank and Dena Bank, a banking source told FE.

Since Dena Bank is under the RBI’s prompt corrective action (PCA) framework and is also barred from lending until it fixes its finances, the central bank is expected to give its inputs on regulatory requirements (including on capital needs) and the way ahead for the larger entity once the merger is implemented.

Also, the regulator could offer clarity on whether the existing restrictions on Dena Bank will be lifted after merger, given that the two relatively strong banks (BoB and Vijaya Bank) will be able to absorb potential shock of amalgamating with a weak one with poor financials, said the source. The government expects the merger to be over this fiscal.

The amalgamation, approved by the Cabinet in September, will create the country’s third-largest lender. The latest move is part of the government’s efforts to create few but strong banks with much larger balance sheet to support the rising appetite for credit of the fast-growing economy and enable optimum utilisation of resources.

The merged entity will have a combined business of Rs 14.8 lakh crore, deposits of Rs 8.4 lakh crore, gross advances of Rs 6.4 lakh crore, and 85,675 employees, based on the position as of June 30.

The merger will not cause any job loss in any of these banks and, as was in case of SBI, no employee of the three banks would have service conditions that are adverse to their present one, finance minister Arun Jaitley had said earlier while announcing the Cabinet decision.

Financial services secretary Rajiv Kumar had said the merger would help improve operational efficiency and customer services. The amalgamated bank will be a strong competitive lender with economies of scale and would have synergies for network, low-cost deposits and subsidiaries, he had said.

The government currently owns majority stake in 21 lenders, which account for over two-thirds of the country’s banking assets. But they also account for an overwhelmingly large share in total NPAs in the banking sector.

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