Dena Bank, Vijaya Bank and Bank of Baroda to be merged

Merger of BoB Vijaya Dena Bank to improve efficiency governance Moody's

Rajeev Kumar, financial services secretary, said the merger plan was part of the effort to clean up the country's banking system.

Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments. "No employee will face any service conditions which are adverse in nature". This will create the country's third-largest bank, and capital support will be provided to the merged entity by the government. In early 2017, plans for State Bank of India (SBI), India's largest bank, to absorb five associate banks got underway.

Stocks of Bank of Baroda, the largest lender among the three, ended 16% lower at ₹113.45, while Vijaya Bank shares closed 5.7% lower at ₹56.40.

While Bank of Baroda saw its steepest fall in over three years, shares of Dena Bank and Vijaya Bank rose sharply as the smaller peers are expected to benefit from the merger. "This took its toll on the economy", he said.

Jaitley said while consolidation of banks was on agenda and was even announced in the Budget, the government was waiting for the non-performing assets (NPA) situation to take a turn for the better before going ahead.

In response to a query regarding the impact to the regional identity of the three banks, Jaitley said it would continue to expand region-wise post-the announcement.

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

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third biggest economy.

The government's Monday announcement signaled that this alternative approach may be tried out in the future too as a step to address the weakness in the banking system which is saddled with almost Rs 9 lakh crore of bad loans. On the other hand, shares of Dena Bank jumped 19.75 per cent to end at Rs 19.10 - its highest trading permissible limit for the day. In addition to poor governance, their balance sheets are disproportionately burdened with bad loans when compared to their private sector counterparts.

"This was accompanied by sweeping the NPAs below the carpet so that the real picture doesn't come out", Jaitley added. "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said.

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".

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