Bank of Baroda, Vijaya stocks end in red, Dena Bank up 20%

Dena Bank, Vijaya Bank and Bank of Baroda to be merged to form India's third largest bank

The government has made a decision to merge three state-owned banks - Bank of Baroda, Vijaya Bank and Dena Bank - that will make it the third largest bank of the country. Rajiv Kumar, Department of Financial Services Secretary, announced that the decision was arrived at after meeting of the "alternative mechanism" which was set up during a year ago to consider consolidation of the Indian Banking Sector.

The plan to merge the three banks was taken by a ministerial panel, led by Finance Minister Arun Jaitley Monday. The government will then prepare an amalgamation scheme for the banks, which will need to be approved by the cabinet and Parliament, Jaitley said.

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, All India Bank Employees' Association has opposed the move saying what is required is an expansion of banks and not a merger of banks.

Last year, five associate banks of SBI and Bharatiya Mahila Bank were merged with State Bank of India to catapult the country's largest lender to among the top 50 banks in the world. "No employee will face any adverse service conditions after the amalgamation".

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 service conditions will apply to all of them", Jaitley added.

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However, FM did not talk about the name of the new entity and said that it will be revealed later.

He said the NPA curve was now taking a turn and the time was opportune to go ahead with consolidation of banks. The net NPA ratio is highest for Dena Bank at 11 percent.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third biggest economy. Corporate loan book constitutes 60 percent of the total loan book for Bank of Baroda and only 17 percent is constituted by the retail loan book.

The Finance Minister further added "In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank". 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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