With the government-forced merger of Dena Bank, Vijaya Bank and Bank of Baroda effective from Monday, April 1, the combined entity is now second-largest public sector lender and third largest bank in the country after State Bank of India and HDFC Bank.
Catapulting itself for a larger play in the system, Bank of Baroda has absorbed the branches, customers and balance sheets of Dena and Vijaya Banks as announced last September.
“We are extremely pleased that Bank of Baroda, Vijaya Bank
Here’s what led to this
Nearly four months after the government announced the decision to agglomerate the third-largest lending entity in the country to rectify bad debt, the Cabinet in January approved the amalgamation of Bengaluru-based Vijaya Bank and Mumbai-based Dena Bank with Bank of Baroda.
The all-stock deal was certain to go through since the
However, the uncertainty over whether the merger would lead to a completely new entity with a new name or an amalgamation was resolved only on Saturday, when the Reserve Bank of India announced that branches of Dena Bank and Vijaya Bank would function as BoB outlets from April.
“Customers, including depositors of Vijaya Bank and Dena Bank will be treated as customers of Bank of Baroda with effect from April 1, 2019,” a statement by the Reserve Bank of India (RBI) said on Saturday.
Salient terms of the merger
BoB said the consolidated bank will have over 9,500 branches, 13,400 ATMs, 85,000 employees to serve 12 crore customers.
“We would work for the success of the amalgamation by effective execution of all the activities to build a stronger organisation and collectively deliver more to the stakeholders than that of sum of individual entities,” Jayakumar added in the statement.
The bank will have a balance sheet of over Rs 15 lakh crore of
“The diverse bouquet of products from the three banks, substantial investments made in technology will help in benefiting a wider customer base,” he said.
What else does the merger entail?
The banks now have a 22 per cent market share in Gujarat and 8-10 per cent market share in Maharashtra, Karnataka, Rajasthan and Uttar Pradesh, it said. With the complementary branch presence, BoB will be able to expand its network in Western and Southern states.
“We would have more branches in states where we are grossly under-represented, such as Andhra Pradesh, Kerala
“A new dawn begins redefining the strength of PSB with the amalgamation of Vijaya & Dena Bank with #BankofBaroda. A proud moment for everyone to take banking to new heights that’s truly Indian at heart and Global in
scale.” says BankofBaroda ED Smt. Papia Sengupta. #PowerOf3 pic.twitter.com/e0YjWCbWzG
— Bank of Baroda (@bankofbaroda) April 1, 2019
“Our rich legacy of providing the best of banking services is paving a new path towards strengthening the public-sector banking system with the amalgamation. A proud moment for #BankofBaroda as we combine to become the #PowerOf3” says Bank of Baroda ED Shri S L Jain. pic.twitter.com/nvQhbNRIa5
— Bank of Baroda (@bankofbaroda) April 1, 2019
The combined entity is reportedly also going to receive a capital infusion of Rs 5,042 crore from the Ministry of Finance, by way of preferential allotment of equity shares of the bank.
State of PSU lenders
This merger follows through with certain directives by the RBI for the government to rectify the bad debt in Indian
Finance Minister Arun Jaitley and Financial Services Secretary Rajiv Kumar said that the
Kumar had said, “It will be a strong competitive bank with economies of scale, network synergies, low-cost deposits and subsidiaries, and a possibility of greater outreach and expansion.”
This is the second merger of state-run banks in the recent years in the banking sector after State Bank had merged five of its associate banks — State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bhartiya Mahila effective April 2017. The government had also greenlit Life Insurance Corporation’s takeover of the debt-ridden IDBI Bank as well.
Why this matters
The news was met with a mixed response, with some mourning the end of Vijaya Bank, the only other PSU profitmaking bank giving dividends to the
Others rejoiced at the fact that Baroda’s shares gained 4% ever since the announcement, with full faith in the merged entity to carry out effective and profitable integration.
However, the three banks had cumulatively lost nearly $1 billion in market valuation between September and January.
Jayakumar has held that the merger would be advantageous for the bank given that the diversification of lending into retail, small and medium enterprises can increase the loan book size by 40%.
The move should ideally spell good news for the employees of Dena Bank,
which is under prompt corrective action (PCA) framework of the RBI with a net non-performing asset (NPA) ratio of 11.04%.
“They will probably stand to get conditions better than they have at present,” Jaitley had said, about its merger with Vijaya Bank, which is one of the best performers among public sector banks, and the steadily performing BoB. All customers of Dena Bank will also have renewed access to credit facilities immediately.
Also read: How to make public sector bank mergers work
Despite Jaitley’s assurance to existing employees against “adverse” consequences due to the merger, bank unions all over the country were strongly opposed to
For now, there is sufficient cause for optimism as most analysts agree with RA Sankara Narayanan, managing director
Prarthana Mitra is a Staff Writer at Qrius.
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