Bank of Baroda sinks on merger with smaller rivals

Bank of Baroda sinks on merger with smaller rivals

Rajiv Kumar, Department of Financial Services Secretary at the Ministry of Finance, Government of India, said that the decision was arrived to create India's 3rd largest globally competitive bank.

Jaitley also clarified that no employee will face any service conditions which are adverse in nature.

The Modi government had announced the consolidation of public sector banks in 2016 owing to mounting non-performing assets.

Last year, top lender State Bank of India was also merged with five of its subsidiary banks.

Now what?The respective boards of each bank will now vote on the merger and if approved, will commence preparations on a plan for the amalgamation of the three entities and decide on a share-swap ratio.

Announcing the plan, Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability.

"Though the consolidation move itself is negative and ushers in uncertainty, the proposed merger of Dena with stronger Vijaya is relatively better for BoB".

While Bank of Baroda saw its steepest fall in over three years, shares of Dena Bank and Vijaya Bank rose sharply as the smaller peers are expected to benefit from the merger.




Jaitley said the government took a series of steps to tackle the NPA challenge including the Insolvency and Bankruptcy Code "which was a defining moment in creditor-debtor relationship".

In response to a query regarding the impact to the regional identity of the three banks, Jaitley said it would continue to expand region-wise post-the announcement.

Besides, Kumar said, Provision Coverage Ratio (PCR) would be better at 67.5 percent against average of 63.7 percent and cost to income ratio of the combined entity would come down to 48.94 percent as compared to average of 53.92 percent.

Unsurprisingly, BoB share price plunged a whopping 16 per cent to Rs 113.45 in Tuesday's trade, while Dena Bank hit upper circuit of 20 per cent, and Vijaya Bank settled at Rs 56.40, down 5.69 per cent. Corporate loan book constitutes 60 percent of the total loan book for Bank of Baroda and only 17 percent is constituted by the retail loan book.

The problems plaguing India's public sector banks are well known. He referred to the two tranches given to the sector as part of recapitalisation.

This is not the first time a bank amalgamation process has taken place. "The UPA had swept the NPAs under the carpet, he said".

Allahabad Bank reported Rs 4,674 crore net loss for FY18 with the ratio of gross non-performing assets being at 15.96%.

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