The Central government on Monday proposed the amalgamation of State-owned Bank of Baroda, Dena Bank and Vijaya Bank to create India’s third largest bank as part of reforms in the public sector banking segment.
The decision was taken at a meeting of a ministerial panel headed by Union Finance Minister Arun Jaitley that oversees merger proposals of State-owned banks. Its other members are Railway Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.
“This major decision was taken by an Alternative Mechanism today to amalgamate Bank of Baroda, Dena Bank and Vijaya Bank. While making this suggestion, we have borne in mind that we don’t want a merger of what are relatively weak banks,” Mr Jaitley said, adding, “You can have two well performing banks absorbing a weak one in the amalgamation process and hopefully creating a mega bank that will be sustainable, whose lending ability which will be far higher.”
Merger of the five associate banks of SBI with itself
This follows the merger of the five associate banks of State Bank of India with itself. The government has also moved to offload its majority stake in IDBI Bank to Life Insurance Corporation of India.
Asked about the choice of banks, Mr Jaitley said this was the government’s assessment because one of the banks [Dena Bank] has been placed under the prompt corrective action framework. “We want to save all the banks. When you make a merger you want to make sure that the merged entity is a stronger entity. Therefore our capacity to subsume that weaker bank into the merged entity, which will be a stronger bank, is the principal factor that weighs with the government. Of course, we see the all India expanse and so on…”
He added that the government would now await the response of the banks on the proposal.
“The Alternative Mechanism took the view that aspirations of the fastest growing economy have to be supported by stronger and globally competitive banks with increased choices to the stakeholders. Accordingly, it was decided to consolidate the three banks,” Rajiv Kumar, Secretary, Department of Financial Services, said.
Enlisting the benefits, Mr Kumar said the proposal entailed that the amalgamated entity would be the third largest in India. “It would be a strong competitive bank with economies of scale. The entity would also be positioned for substantial rise in customer base, market reach and operational efficiency.”
Employees' interests will be protected
The employees' interests would be protected and brand equity preserved. “Capital support, if any, to make it a big and global bank will be ensured,” he said.
As a backgrounder to the decision, Mr Jaitley said the public sector banks (PSBs) were too many in number and saw “peak lending” of Rs 55 lakh crore between the years 2008 to 2014. Before, 2008, the total amount of bank lending stood at Rs 18 lakh crore, he said.
“The nature of the lending was as if there is no tomorrow. The banks have to be emptied before 2014. And that took its toll on the economy. This was accompanied by another step which was really to sweep the NPAs [non-performing assets] below the carpet. So that the real picture does not come out. NPAs worth 8.5 lakh crore were shown to be 2 lakh crore,” the Minister said.
Asked about the increasing fuel prices, coupled with declining value of rupee against the dollar, Mr Jaitley said, “These are impacts of a very significant global phenomenon that are going on. You have atleast three, if not more, globally coming on the nature of things happening.”
“One is the squeeze which has been put on oil production upsetting the demand supply ration which is increasing the crude oil prices. The second is the trade war and we don’t know when we are going to see the end of it. It impacts a major currency in our region --- China, and that of course, creates an upheaval in this region. The third is the internal economic decision of the U.S., which are leading to further strengthening of dollar,” he added.
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