Merger of BOB, Dena Bank and Vijaya Bank

 Introduction :-

 The government recently announced the merger of Bank of Baroda,

Dena Bank and Vijaya Bank.
 Minimising NPA’s and clearing balance sheet is the main objective of
the banks of latest merger which was announced by the government.
 One weak bank is merged with other stronger counter banks is kind of
strategy adopted by the government.
 In the above merger BOB will be the transferee bank where as the
other two i.e. Dena Bank and Vijaya Bank are transferor banks. The
business done by Dena bank and Vijaya bank will be transferred to
BOB.
 Along with the business all the permanent and regular officials will
also be transferred to BOB.

 Significance :-

 We are witnessing for the first time a merger of three PSBs can be a
forerunner to each other moves.
 It will lead to enhance a wider operational efficiency of products and
services to the customers.
 The merger will have a strong presence across the nation 34% low
cost deposit and nearly 12% capital buffer.
 Due to which PCR (provision coverage rate) of the proposed entity
will be 67.5% which is more than the overall PSBs which is 63.7%.
  As BOB is nation-wide reach bank where as Dena and Vijaya are
localized banks, this merger will provide better combined network and
subsidiaries.

 Reasons for Merger :-

 The main reason for merger is to tackle the issue of bad loans where
corporate borrowers are not repaying their dues to the banks
 All the three banks use same source of core banking system which
will ease the merger on technology platform too.
 The merger will make the banks stronger and sustain with increase in
lending ability.
 It is expected to carter the issue of fresh loans in the economy.
 It will enable the government to pay closer operational attention to
enlarge the institution.
 Also to bridge the geographical gaps between the banks.
 To protect depositor’s money and also financial system.

 Benefits :-

 Due to merger the capital will be higher and will give a feeling of a
strong bank.
 It will also benefit with larger lending capacity.
 It will improve the quality of corporate governance for the banks as
well as provide efficiencies of scale.
 Cost of funds of merger may come down.
 Stronger banks can attract more Current and Savings account deposits.
  The merged entity will have a market share of about 6.8% by loans.
 Merged entities will have a strong capacity to raise resources without
depending upon anyone
 It will increase the demand of fresh loans.

 Challenges :-

 Without addressing the issues in the banks it may not change the
architecture of the merging two-three banks.
 Integration of cultural organisations and technology platforms.
 BOB is the largest bank amongst all three where it will take a hit on
its asset quality.
 Things cannot be changed as the capital remains unchanged for the
banking system as a whole.
 GNPA cannot be changed and still Gross NPA has to be addressed.
 Under the corrective action of RBI, Dena bank is in the view of high
NPA and negative RoA.
 Mergers are not a solution in the context of PSBs.