Finance Minister Arun Jaitley speaks during a press conference, in New Delhi today
The Centre today announced the plans to merge three national banks - Dena Bank, Vijaya Bank and Bank of Baroda. The merger of the three banks will create the third largest bank of the country, Financial Services Secretary Rajiv Kumar said.
The move follows top lender State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.
The Financial Services secretary said that the banks' merger will create a financial entity which will be better positioned for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services for customers.
He added that the interests of the employee will be protected during the merger. Capital support will be ensured, Kumar said during a press conference in New Delhi.
The merger of five SBI associate banks was done without any job losses, he said. The three banks will continue to work independently after the merger.
Kumar said the merger would help improve operational efficiency and customer services. He said it was time for the next generation of strategic banking reforms.
He said the stock of non-performing assets (NPAs) had reduced by Rs 21,000 crore in last quarter. Banks recovered Rs 36,551 crore in the first quarter of FY19. There was a need to increase scale and synergy for growth momentum to continue, he said.
Announcing the plan, Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. Giving the context of the merger, he 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.
The finance minister also ensured that 'no employee will face any service conditions which are adverse in nature due to the merger' and the best of the service conditions will apply to all of them.
"Government had announced in the budget that consolidation of banks was also in our agenda and the first step has been announced," FM Jaitley told media during a presser in New Delhi on Monday.
The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy.
But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.
Banks merger a progressive step: Ficci
Industry body Ficci termed the government's decision to merge three state-owned banks as a progressive move, noting that it signifies the government's commitment to strengthen the banking sector.
According to the chamber, the merger will lead to greater operational efficiencies and Dena Bank, Vijaya Bank and Bank of Baroda would benefit through a synergistic relationship that would leverage one another's network, customer base and access to low cost deposits.
"This is a progressive move and signifies the government’s determination to strengthen the banking sector in the country for a better performance and service delivery," said Rashesh Shah, President of Ficci.
"A stronger banking sector is vital for the overall health of the economy and we hope to see more such measures in the times ahead," Shah added.
(With inputs from PTI)
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