Three state-run banks – Dena Bank, Vijaya Bank and Bank of Baroda – will be merged to create the third-largest bank in the country, the government said on Monday, as part of efforts to clean up the country’s banking system.
The government will continue to provide capital support to the merged entity. The announcement, made by Financial Services Secretary Rajiv Kumar during a press conference with Finance Minister Arun Jaitley, comes as the country’s banking sector grapples with Rs. 8.99 lakh crore worth non-performing assets or NPAs.
The proposal will be sent to the boards of the three banks, which need to approve it, before any further process, Rajiv Kumar said. He added that the sector needs reforms and the government is taking care of banks’ capital needs.
The government expects that the process of amalgamation would be completed by the end of this financial year. The three banks will continue to function independently till the merger.
Rationalisation of overseas operation in banking sector is in full swing, Mr Kumar said, adding the government is keen to take steps so that history isn’t repeated as far as NPAs are concerned.
Speaking on the merger, Arun Jaitley said that bank lending was becoming weak, hurting corporate sector investments. The government had announced in the budget that consolidation of banks was also in its agenda and the first step has been announced, he added.
“No employee will face any service conditions which are adverse in nature. The best of the service conditions will apply to all of them,” Mr Jaitley said.
The government owns majority stakes in 21 lenders, which account for more than two-thirds of country’s banking assets. PSU Banks account for the lion’s share of bad loans plaguing the sector. The sector needs capital infusion in millions of rupees in the next two years to meet global Basel III capital norms. In January, the government announced Rs. 88,139 crore capital infusion in public sector banks in the current fiscal.
Currently, state-run State Bank of India, and private sector peers HDFC Bank and ICICI Bank are the three largest banks in the country.
Five associates and the Bharatiya Mahila Bank became part of the State Bank of India (SBI) in April last year, which helped the country’s largest lender increase its scale and cut expenses through synergy of operations. In August last year the government had set up a ministerial panel to speed up consolidation of state-run banks.