Moody’s: Merger of BoB, Vijaya Bank, Dena Bank to improve efficiency, governance

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The three banks will continue to operate as independent banks till the proposal is passed by the boards of individual banks and the name of the merged bank would be decided by them in the scheme of amalgamation, he said.

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.

Dena Bank reported a loss of Rs 1,923.20 crore against Rs 863.60 crore past year.

The merged banks will have a deposit base of Rs 8.41 lakh crore and advances base of Rs 6.4 lakh crore. The big surprise was Vijaya Bank, a reasonably profitable bank, being brought into the proposed merger.

"Alternative mechanism under Finance Minister, Arun Jaitley suggests bankofbaroda, VijayaBankIndia & dena_bank to consider amalgamation; to create India's 3rd largest globally competitive bank", he tweeted on Monday evening.

Regarding the overseas operations of the banking sector, Kumar said rationalisation of operations is in full swing, and the government is keen to take steps so that history isn't repeated as far as non performing assets (NPAs) are concerned.

Dena Bank has been placed under the prompt corrective action framework by the Reserve Bank of India with restrictions on lending, while Vijaya Bank is among the only two lenders to have reported a profit in 2017-18.

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DB analysts see the bank's shareholders facing challenges such as likely dilution in focus of the bank's management towards the merger and away from growth.

Citing the merger of SBI'e entities, FM said that it will benefit the working conditions of the employees of smaller banks.

"Though the consolidation move itself is negative and ushers in uncertainty, the proposed merger of Dena with stronger Vijaya is relatively better for BoB". This will help the merged bank to scale up across the country.

Jaitley said the truth of the bad loan crisis was revealed only in 2015 because the previous UPA government had been sweeping the problem under the carpet. Uco Bank had the annual loss at Rs 4,436 crore with nearly a quarter of its loans turning NPAs.

"In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank". We were waiting, before moving forward, for the situation to start turning. "That took a toll on the economy".

Cheered by the news, Dena Bank hit an upper circuit limit of 20 per cent in the opening deals while Vijaya Bank was trading flat at Rs 60.20 apiece on BSE, up 0.67 per cent.