New Delhi: The government on Monday said state-owned Bank of Baroda, Vijaya Bank and Dena Bank will be merged to create the country’s third-largest lender as part of efforts to revive credit and economic growth.

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.

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.

“This amalgamated entity will increase banking operations,” he said.

As was in the case of SBI, no employee of the three banks would have service conditions that are averse to their present one.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in 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.

Financial Services Secretary Rajiv Kumar said bank boards of the three banks will examine the amalgamation proposal. “The merger will help improve operational efficiency and customer services.”

The amalgamated bank would be the third largest bank in India and will be a strong competitive lender with economies of scale, he said adding the three would have synergies for the network, low-cost deposits and subsidiaries.
While the employee's interest will be protected, brand equity will be preserved, he said.

Capital support to the merged entity of Dena Bank, Vijaya Bank and BoB would be ensured, he said.

Also read: Bank merger: Shares of Dena Bank surges 20%, Bank of Baroda tumbles 14%

The three banks will continue to work independently post-merger.