The government on Monday unveiled the merger of three state-run banks - Bank of Baroda, Dena Bank and Vijaya Bank + - to create India's third largest lender, setting off consolidation in the nationalised banking space after years of discussion.
The government will continue to provide capital support to the merged bank, which is expected to be India's third largest with assets of 14.82 trillion rupees ($204 billion), Rajeev Kumar told reporters.
"Capital Adequacy Ratio (of the amalgamated bank) at 12.25 per cent is significantly above the regulatory norm of 10.875 per cent and the stronger amalgamated bank will be better positioned to tap capital markets", the government said.
New Delhi, July 27 () Public sector lender Bank of Baroda today reported a more than two-fold jump in net profit at Rs 528.26 crore for the first quarter of 2018-19 as provisions for bad loans dropped.
The decision to merge the three banks will first need to be approved by the board of directors of Bank of Baroda, Dena and Vijaya. This proposal has to be passed by the Boards of the individual banks.
Last year, top lender State Bank of India was also merged with five of its subsidiary banks.
When asked about the timing of this merger amid falling value of Indian rupee, the Finance Minister said the business in government doesn't come to a standstill even if you have global challenge of high crude oil prices and strengthening of USA dollar. While it may make sense to amalgamate Vijaya Bank and Bank of Baroda as both banks have relatively strong financials, including Dena Bank in the consolidation exercise is fraught with pitfalls, he added. "Accordingly, it was chose to consolidate the three banks", said Rajiv Kumar, Secretary, Department of Financial Services.
"No employee would face adverse service conditions due to the merger", he added.
He also stated that the proposed merger will have no negative impact on the employees as well as the customers of the respective banks. "The best of the service conditions will apply to all of them".
The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy.
"Over time, this (merger) will strengthen the global positioning of Indian banks, but there will be a considerable transition period for this", said Sujan Hajra, chief economist and head of research at Mumbai-based broker Anand Rathi.
The Minister added that this indiscriminate lending of nature "as if there was no tomorrow" took a toll on the economy, which was followed by evergreening of loans and brushing the NPAs under the carpet. The banking industry was saddled with bad loans - called non-performing assets in banking parlance - of Rs 8.50 lakh crore.
"It was only after 2015 that the real picture was known and the government and the RBI started taking concrete steps".