Bank of Baroda to merge with Vijaya and Dena Bank, says Finance Minister Arun Jaitley

Customers of the three state-run banks are set to benefit from the proposed amalgamation of Dena Bank and Vijaya Bank, two relatively small banks, with Bank of Baroda (BOB). The merged entity will become third largest bank with a total business of Rs 14.82 lakh crore, and post a substantial rise in its customer base, market reach and operational efficiency.

The merger process will also consolidate the non-performing assets of the three banks at Rs 80,000 crore, resolutions of which may be put on the back burner as the banks will have to tackle issues related to the amalgamation.

"The government has suggested to the banks to consider the proposal. The boards of respective banks after consultations will take an appropriate decision," Finance Minister Arun Jaitley said. Jaitley has also assured there will be no job losses.

While the Bengaluru-based VIjaya Bank is a strong bank reporting profits, the Mumbai-based Dena Bank is a weak bank bogged down by losses and under prompt corrective action (PCA). BOB reported a loss of over Rs 3,000 crore in the fourth quarter but returned to profitability (Rs 528 crore) in the first quarter of the financial year. Jaitley said that weak and strong banks are being amalgamated so that the merged entity emerges stronger.

(Finance Minister Arun Jaitley on Monday as he addresses a press briefing in New Delhi —BB Yadav/dna)

Dena Bank reported a loss of Rs 722 crore in the first quarter ended and the non-performing assets of the bank was at 22.69%, which means for every Rs 100 it lend, Rs 22.69 was delinquent. But the silver lining is the high CASA (current account savings account) ratio of Dena Bank at 39.80% will give BOB access to low cost deposit base of the bank. BOB has a CASA ratio of 35.52% while Vijaya Bank, of 24.91%.

Total employee strength will be 85,675 employees, with 56,361 employees of BOB, 15,874 employees of Vijaya Bank and 13,440 employees of Dena Bank.

Customers of Dena Bank and Vijaya Bank will get to be a part of a larger and a wider banking network. "But the connect that customers have with a smaller bank is much stronger than that of a bigger bank," said an employee of Vijaya Bank.

Given the large overlap of Dena Bank and BOB in Gujarat, some rationalisation may be underway. All three banks will now be headed by PS Jayakumar, chairman and managing director of Bank of Baroda. A former employee of Citibank where he spent 23 years, Jayakumar joined BOB in 2015. His term is coming to an end next month and there is no word on his extension so far. In the last three years, Jayakumar has been cleaning up the bad loan mess at the bank and silently transforming the bank by implementing robust lending practices and plugging the lacunae in the credit appraisal systems.

"In the longer run, it may not be a bad deal for Bank of Baroda because it has received one strong bank (Vijaya Bank) for the weaker bank (Dena Bank). Hence the merged entity will have marginally better GNPA percentage from present BOB book which is notable. Also, Bank of Baroda enjoys better valuation than the other two banks and the merged entity can benefit from this. Given larger presence of BOB and Dena Bank in Gujarat, there would be overlap of branches and ATMs, so there could be gains from rationalisation and not necessarily synergies. There is scope for merger to bring growth for Bank of Baroda," Lalitabh Shrivastawa Assistant vice president- Research at Sharekhan by BNP Paribas.

Assuring the employees of no job losses, Jaitley said employees of a relatively small banks will get an opportunity to improve their working conditions and the amalgated entity will increase the banking operations. "The healthy ratios of amalgamated banks is reflected in larger business base, strong deposits, large global network, significant outreach," Jaitley added.

However the All India Bank Employees Association general secretary CH Venkatachalam claimed that there is no evidence that merger of banks would strengthen the banks or make them more efficient. "SBI's merger of its associate banks has led to closure of branches, loss of jobs and for the first time in its 200 year-old history, SBI reported losses after the merger. Government is diverting attention from the alarming increase of bad loans," he said.