The government proposed merger of 3 pubic sector banks on Monday. The amalgamation of Vijaya Bank, Dena Bank and Bank of Baroda (BoB) will enhance economic activity. Because low corporate sector investments and ₹10.3 trillion non performing assets (NPA) have weakened credit in the banking sector.
FM’s statement at the Ministerial panel
This major decision was taken by Alternative Mechanism today to amalgamate Bank of Baroda, Dena Bank and Vijaya Bank. While making this suggestion, we have borne in mind that we don’t want a merger of what are relatively weak banks. You can have two well performing banks absorbing a weak one in the amalgamation process and hopefully creating a mega bank which will be sustainable, whose lending ability which will be far higher.
Basil III Capital Norms
Public sector banks are looking to meet the global Basel III capital norms in 2 years. However that would require huge capital infusion. So the government decided on the amalgamation.
Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision and risk management of banks.
Similar merger – SBI
In April 1 2017, State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), besides Bharatiya Mahila Bank (BMB), merged with the SBI.
The merged entities had ₹65,523 cr worth NPAs totaling to ₹223,427 cr including SBI. This accounted for 10.9% of gross advances. Also, SBI reported a net loss of ₹6,547 cr- the first ever since 2007-08.
However the merger provided a 15% increase in loans to ₹20.44 lakh cr and a 20% increase in deposits to ₹27.06 lakh cr.