Government Initiated Consolidation – Amalgamated Entity to be India’s third largest bank

Why in News?

  • The Alternative Mechanism comprising of its Chairperson, the Union Finance Minister decided that Bank of Baroda, Vijaya Bank and Dena Bank may consider their consolidation.
  •   It will be the First-ever three-way consolidation of banks in India, with a combined business of Rs. 14.82 lakh crore, making it India’s Third Largest Bank.

Impact of the Merger:

  • It will help create a strong globally competitive bank with economies of scale and enable realization of wide-ranging synergies.
  •  Leveraging of networks, low-cost deposits and subsidiaries of the three banks has the potential for substantial rise in customer base, market reach, operational efficiency, wider products and services, and improved access for customers.
  •  Some of the strengths of the envisaged amalgamated entity are—
  •  Provision Coverage Ratio (PCR) at 67.5% is well above Public Sector Banks (PSBs) average (63.7%), and steadily increasing
  •  Net NPA ratio at 5.71% significantly better than PSB average (12.13%), and declining further
  • Gross NPAs for the combined entity have started declining (decline of Rs. 1,048 crore in Q1)
  •  Cost to income ratio of the combined entity at 48.94% better than the PSB average of 53.92%
  • Capital Adequacy Ratio (CRAR) at 12.25% is significantly above the regulatory norm of 10.875%, and stronger amalgamated bank will be better positioned to tap capital markets

Combined range of Services:

  • Dena Bank’s strength in MSME will further augment the strength of the other two to position the amalgamated bank for being an MSME Udyamimitra
  •  Larger distribution network will reduce operating and distribution costs with benefits for the amalgamated bank, its customers and their subsidiaries
  • Global network strength of Bank of Baroda will be leveraged to enable customers of Dena Bank and Vijaya Bank to have global access.
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