India to merge three state-owned banks

Ivan Schwartz
September 18, 2018

The government on Monday said that state-owned Bank of Baroda, Vijaya Bank and Dena Bank will be merged to create the country's third largest lender as part of efforts to revive credit and economic growth. He said the present government has tried to cleanse the bad loan mess, with steps such as asset quality review of the banks, adequate provision against stressed assets and enactment of the Insolvency and Bankruptcy Code to address the logjam in the sector.

Union Finance Minister Arun Jaitley is briefing at National Media Centre in New Delhi on Monday. Besides Jaitley, the alternative mechanism includes defence minister Nirmala Sitharaman and railway minister Piyush Goyal. The newly merged entity would be the third largest bank of the country, said Financial Services Secretary Rajiv Kumar.

The merger comes in following the completion of State Bank of India and its associated banks during 2017.

With State Bank of India earlier acquiring five of its associate banks and Life Insurance Corporation in the process of taking over IDBI Bank, the amalgamation of Dena Bank would still leave the government with nine more banks on a weak wicket.

"But a lot will depend on the management of the larger entity and what the synergies will be", he said.

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Experts were, however, not very hopeful about the prospects for Bank of Baroda. "Accordingly, it was made a decision to consolidate the three banks", said Rajiv Kumar, Secretary, Department of Financial Services. "It would be a strong competitive bank with economies of scale".

"The merger will help improve operational efficiency and customer services".

The government had consultations with the Reserve Bank of India on the merger, Jaitley said. "Capital support, if any, to make it a big and global bank will be ensured", he added.

Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs, he said. Before, 2008, the total amount of bank lending stood at Rs. 18 lakh crore, he said. The nature of lending was as if there is no tomorrow. "The banks have to be emptied before 2014". "This took its toll on the economy", he said. "And the first step was to accept there were NPAs of Rs 8.5 lakh crore on account of adventurous lending", Jaitley said.

"One is the squeeze which has been put on oil production, upsetting the demand-supply ratio which is increasing the crude oil prices".

Other reports by GizPress

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