The Government of India is planning a merger of Bank of Baroda, Vijaya Bank and Dena Bank in a bid to combat the growing bad loans and restore credit growth. The Government will continue offering capital and other support to this newly merged entity which is expected to be the third biggest banking outfit in the country with Rs. 14.82 trillion in assets or roughly $204 billion as per reports. The Government has majority stakes in a whopping 21 lenders which is more than 2/3rd of the overall banking assets in the country.
However, these banks also have the majority share exceeding $150 billion in bad loans which is impacting the sector negatively. They also require huge capital inflows in order to adhere to global Basel II capital regulations over the next couple of years. The merger will have to obtain approval from all the directors at these banks and the Government will be working on a scheme for amalgamation in the meantime. Cabinet approval will be solicited along with approval from both houses of Parliament. The entire procedure should be wrapped up by end-March 2019 as per the Union Finance Minister, Arun Jaitley’s statement.
The new bank will have the net NPA (non-performing asset) ratio at 5.71% of its overall assets along with 85, 675 employees and close to 9, 500 branches. A new insolvency process has already been launched by the country back in the year 2016 for rapidly ensuring recoveries of debt and other restructuring. The merger of State Bank of India with its 5 subsidiaries was also approved in February last year. A ministerial panel was also created in 2017 for fast-tracking consolidation initiatives for other public sector banks.