‘Amalgamation may take 1 year’

The government’s ambitious plan to merge three public sector banks — Bank of Baroda, Vijaya Bank and Dena Bank — could take at least one year to complete, banking industry officials said.

The proposal to merge these banks, seen as long overdue, is being hailed by experts as it will provide scale. The combined entity will become the second largest public sector bank, with a balance sheet size of about ₹15 lakh crore.

“This is a remarkable step. But it still not a mandate. It’s the board of the banks [that] have to decide on one side and then the matter would be taken up in the formation of a scheme, submitted to the regulator and importantly it will require Parliament’s approval,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.

Mr. Parekh is of the opinion the merger process would take nine to 12 months to complete.

R. Gandhi, former Deputy Governor, Reserve Bank of India (RBI) also thinks it would take one year for the merger to happen.

‘Prudent decision’

Regarding the choice of the banks, Mr. Gandhi pointed out the government had taken a prudent decision by opting to pick the best bank among the laggards viz. Dena Bank.

Dena Bank has the highest net NPA ratio among the three banks (11.04%), lowest capital adequacy ratio (10.6%) and the only bank among the three having negative return on assets.

“But the overall impact of Dena Bank on the merged entity will be limited as it’s size is small compared to other banks that are in trouble,” Mr. Gandhi said.

Total business of Dena Bank is ₹1.73 lakh crore, which is about 11.5% of the business of the combined entity. The net NPAs of the combined entity would be 5.7% with a capital adequacy ratio of 12.25%.

“The long-term synergies would be positive and this entity would emerge as a strong bank. Though Vijaya Bank is a profitable bank, it would get the synergies of Bank of Baroda, which is much larger in size. Markets would look at this development with a one-two years horizon,” said Sanjiv Bhasin, EVP - markets and corporate affairs, IIFL.

One of the biggest challenges for the merger is likely to be human resources management, Mr. Gandhi added.

“Even though they are public sector banks, each one have different culture. The approach and attitude is not to change quickly. So it will depend on leadership…it is to be seen how the leadership tackles the issue,” Mr. Gandhi added.

Unions oppose move

The All India Bank Employees’ Association (AIBEA) has opposed the government’s proposal and demanded the decision be ‘reviewed and re-examined.’

“Merger of the banks will not help recover the bad loans,” C.H. Venkatachalam, general secretary, AIBEA said.

“The total bad loans in the 3 Banks, BOB, Dena Bank and Vijaya Bank is about ₹80,000 crore,” he added.

“Merger of these banks will not help to recover the bad loans. On the other hand, the focus will be shifted to merger issue and that is the game plan of the government,” he said.

The union has called for tough measures to recover the bad loans.

The statement pointed out that out of 21 public sector banks, 19 are in loss on account of bad loans and provisions for bad loans.

“21 PSBs put together, as on 31-3-2018, the total Operating Profit was ₹1,55,565 crore but due to provisions for bad loans to around ₹2,70,000 crore, there is a net loss of ₹85,000 crore,” the statement said.

This article is closed for comments.
Please Email the Editor

Printable version | Oct 20, 2020 11:04:22 PM |

Next Story