Cabinet clears merger of Dena Bank, Vijaya Bank with Bank of Baroda

The government had, in September last year, proposed merger of the three banks to make them third largest, globally competitive banks. The scheme of things will come into effect from April 1, 2019.

According to the government's estimates, Net non-performing asset (NNPA) ratio of the combined entity will be at 5.71 percent, which will be significantly better than PSB average (12.13 percent). Furthermore, Capital Adequacy Ratio (CRAR) will be at 12.25 percent, which is expected to be "significantly" above the regulatory norm of 10.875 percent.

Centre expects the combined business of the banks to stand at Rs 14.82 lakh crore.

As per the Centre's plan, all the businesses, assets, rights, titles, claims, licences, approvals and other privileges and all properties, borrowings, liabilities and obligations of Dena and Vijaya Bank will be transferred to BoB.

Dena Bank, which is presently under the Reserve Bank of India's (RBI) prompt corrective action (PCA) framework is also expected to function as a regular bank after the merger.

The government's plan also stated that every "regular and permanent" employee of the transferor bank will work in the same capacity in the post-merger bank as he/she was before the merger.

"The board of the transferee bank shall ensure that the interests of all transferring employees and officers of the transferor bank are protected," the release said.

The Cabinet also decided that the banks would work out the exchange ratio among themselves as per their own expert committee.

According to a release filed with the exchanges, Bank of Baroda said Vijaya Bank shareholders will receive 402 shares of BoB for 1,000 shares held of Vijaya Bank. Dena Bank’s shareholders will receive 110 shares of BoB for every 1,000 shares.

The individual boards of the banks had to approve the proposal after the government's suggestions. While all the banks had approved the merger last year, BoB approved the swap ratios for the merger on January 2nd.

Centre had proposed the merger on the back of suggestions made by 'alternative mechanism', set up to consider consolidation in the banking sector.

The Modi government had announced the consolidation of public sector banks in 2016 owing to mounting non-performing assets. The plan was to cut down the number of PSBs by half from 21 to about 10-12 banks

Centre expects the merged entity to enjoy economies of scale, yield significant synergy, increased customer base, wide market reach, operational efficiency and better customer services due to properly managed subsidiaries, expansive network and low cost of operation.