New banking giant: Govt to merge BoB, Dena & Vijaya

18 September, 2018, 07:29 | Author: Regina Silva
  • Three banks merger

But these banks also account for the lion's share of more than $150 billion in bad debt which is weighing on the sector, and need billions of dollars in new capital in the next two years to meet global Basel III capital regulations.

Rajeev Kumar, financial services secretary, said the merger plan was part of the effort to clean up the country's banking system.

When asked about the timing of this merger amid falling value of Indian rupee, the Finance Minister said the business in government doesn't come to a standstill even if you have global challenge of high crude oil prices and strengthening of USA dollar.

Arun Jaitley said, "The government had announced in the budget that consolidation of banks was also in our agenda and the first step has been announced".

Financial Services Secretary Rajiv Kumar said bank boards of the three banks will examine the amalgamation proposal.

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.

"Nobody should have a worry because this amalgamated entity will increase the banking operations".

In this regard, Venkatachalam pointed out that State Bank of India's bad loan woes got exacerbated after it acquired five associate banks.

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At a press conference after the announcement, Union Finance Minister Arun Jaitley said the "major economical banking decision" was taken to make weaker banks stronger with the merger. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments.

"No employee would face adverse service conditions due to the merger", he added.

Provision coverage ratio of the combined entity will be at 67.5 per cent, higher than the PSB average of 63.7 per cent, and it will have a total of 9,489 branches. Contrarily, Vijaya Bank is performing better as it has a gross NPA ratio of 6.9 percent.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third-biggest economy.

"Capital Adequacy Ratio (of the amalgamated bank) at 12.25 per cent is significantly above the regulatory norm of 10.875 per cent and the stronger amalgamated bank will be better positioned to tap capital markets", the government said.

"This was accompanied by sweeping the NPAs below the carpet so that the real picture doesn't come out", Jaitley added.

The Finance Minister further added "In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank". He alleged that banks undertook above-normal lending during 2008-2014 as "if there was no tomorrow" resulting in huge non-performing assets to the tune of Rs 8.5 lakh crore.

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