BoB, Dena, Vijaya Bank lined up for amalgamation

The government on Monday announced proposal to amalgamate three public sector banks — Bank of Baroda, Vijaya Bank and Dena Bank. With a combined business of approximately ₹15 lakh crore, the new entity will be the third-largest bank in India after State Bank of India and ICICI Bank.

“Nobody will have to worry,” Finance Minister Arun Jaitley said, assuring the employees of the two relatively smaller banks.

Key difference

The key difference between a merger and an amalgamation is that a merger is a union of two or more enterprises whereby the assets and liabilities of one are vested in the other, with the effect that the former enterprise loses its identity; on the other hand, an amalgamation is a coming together of two-three corporate entities where the assets and liabilities of all of them are vested with a new entity, with the effect that all of them lose their identities to form a new entity.

Jaitley said that no employee will face adverse service conditions as a consequence of the amalgamation. Vijaya Bank currently has 15,874 employees, and Dena Bank 13,440. The amalgamated entity will have over 85,000 employees, across approximately 9,500 branches. The amalgamation exercise is likely to be completed in 4-6 months and the name of the combined entity will be decided later. The decision to forward the amalgamation proposal to the banks’ boards was taken in a meeting of the Alternative Mechanism body chaired by Jaitley and attended by Railway Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.

Financial Services Secretary Rajiv Kumar said the banks’ boards will examine the proposal. “The amalgamation will help improve operational efficiency and customer services. Capital support to the new entity will be ensured,” he said.

Open offer soon

This scheme involves no payment of money. Since the scheme involves three listed banks, all formalities such as open offer for minority shareholders will be complied with. There will be a swap ratio for the existing shareholders of these banks. The banks’ boards will formally approve and finalise the procedure, Jaitley said.

After all the formalities, the number of public sector banks in India will come down to 19 from 21. Giving the context of this decision, Jaitley said bank lending was becoming weak, hurting corporate sector investments. Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs, he said. “This amalgamated entity will increase banking operations,” he added.

The government owns majority stakes in 21 banks, which account for more than two-thirds of banking assets in the Asia’s third-biggest economy, but these PSBs also account for the lion’s share of bad loans plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.

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