India to merge three state-owned banks

Dena Bank, Vijaya Bank and Bank of Baroda to be merged to form India's third largest bank

However, FM did not talk about the name of the new entity and said that it will be revealed later. "We have made a decision to merge Dena Bank, Vijaya Bank and Bank of Baroda".

"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".

The amalgamated bank would be the third largest bank in India and will be strong competitive lender with economies of scale, he said adding the three would have synergies for network, low-priced deposits and subsidiaries. The meeting chaired by Jaitley was attended by Ministers Piyush Goyal and Nirmala Sitharaman.

"No employee would face adverse service conditions due to the merger", he added.

A senior banker said that with the amalgamation announcement, the government may be moving a step closer to implementing the Narasimham Committee recommendation on structural reforms. "At a time when we need more branches and financial inclusion, the amalgamation will lead to closure of branches, which is not good for the development of the country and is anti-people", said CH Venkatachalam, General Secretary, All India Bank Employees' Association.

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The proposed merger follows a similar move by the government in February previous year when it merged State Bank of India with its five subsidiary banks, helping the country's largest lender by assets increase its scale and cut expenses through synergies. They were large in numbers and 2008-2014 became a peak lending period.

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.

Jaitley said the government took a series of steps to tackle the NPA challenge including the Insolvency and Bankruptcy Code "which was a defining moment in creditor-debtor relationship". The new merged bank will have a total business of more than Rs 14.82 trillion, Live Mint reported.

"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. "With BOB forming the biggest chunk of the business (two-third), this scheme appears to create some headwinds for the bank", said Dhananjay Sinha, Head of Research, Economist and Strategist, Emkay Global Financial Services.

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