Vijaya surprise in BoB-Dena merger

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

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Arun Jaitley, Finance Minister of India briefed the media and said that the merger has been conceived in such a way that the combined lender will not end up being weaker than the existing individual entities.

Bank of Baroda shares fell over 11 per cent after earlier losing as much as 11 per cent in Tuesday's trade after the government announced its merger with smaller peers Dena Bank and Vijaya Bank, both of which gained.

The idea of amalgamation was proposed by a Cabinet-approved Alternative Mechanism on bank mergers comprising Jaitley, Railways Minister Piyush Goyal and Defence Minister Nirmala Sitharaman after a meeting Monday.

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As a backgrounder to the decision, Mr. Jaitley added that the PSBs were too many in number and bank lending stood at Rs. 55 lakh crore by 2014. 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.

"Merging the three banks will give the new entity benefits of economies of scale and distribution", said Sunil Sharma, chief investment officer at Sanctum Wealth Management. In the previous such mega merger, five associate banks and the Bharatiya Mahila Bank became part of the state-run State Bank of India on April 1, 2017, making the country's largest lender among the world's top 50 banks.

Announcing the plan, Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. "The entity would also be positioned for a substantial rise in customer base, market reach and operational efficiency".

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"The nature of the lending was as if there was no tomorrow", the Minister said.

While the employees interest will be protected, brand equity will be preserved, he said.

Recalling the disastrous consequences of the first amalgamation in the public sector banking space, the leaders said when New Bank of India - which was a weak public sector bank - was merged with Punjab National Bank in the mid-80s, the latter took a long time to return to black. This was accompanied by another step which was really to sweep the NPAs below the carpet so that the real picture does not come out. During the UPA regime, the banks had not reported NPAs of just Rs 2.50 lakh crore, thereby concealing the seriousness of the problem.

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