Fight against Bad Loans: Merger of Bank of Baroda, Dena Bank and Vijaya Bank to come into force from 1st April 2019.

The much-awaited amalgamation of Bank of Baroda, Dena Bank and Vijaya Bank is set to be India's first ever three-way consolidation of banks.

The Union Cabinet chaired by PM Narendra Modi has approved the scheme of amalgamation for amalgamating Bank of Baroda, Vijaya Bank and Dena Bank, with Bank of Baroda as the transferee bank and Vijaya Bank and Dena Bank as transferor banks.

The amalgamated entity, which is likely to retain the brand name of Bank of Baroda will become India's second largest bank after State Bank of India. The amalgamation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies. Leveraging of networks, low-cost deposits and subsidiaries of the three banks has the potential of yielding significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers.

Key points of the Scheme of amalgamation:

1. Vijaya Bank and Dena Bank are transferor banks and BoB is transferee bank.
2. The scheme shall come into force on 1.4.2019.
3. Upon commencement of the scheme, the undertakings of the transferor banks as a going concern shall be transferred to and shall vest in the transferee bank, including, inter alia, all business, assets, rights, titles, claims, licenses, approvals and other privileges and all property, all bor­rowings, liabilities and obligations.
4. Every permanent and regular officer or employee of the transferor banks shall become an officer or employee and shall hold his office or service therein in the transferee bank such that the pay and allowance offered to the employees/officers of transferor banks shall not be less favourable as compared to what they would have drawn in the respective transferor bank.
5. The Board of the transferee bank shall ensure that the interests of all transferring employees and officers of the transferor bank are protected.
6. The transferee bank shall issue shares to the shareholders of transferor banks as per share exchange ratio. Shareholders of the transferee bank and transferor banks shall be entitled to raise their grievances, if any, in relation to the share exchange ratio, through an expert committee.

 Some of the strengths of the envisaged amalgamated entity are-

• The amalgamated bank will be better equipped in the changing environment to meet the credit needs of a growing economy, absorb shocks and capacity to raise resources. Economies of scale and wider scope would position it for improved profitability, wider product offerings, and adoption of technology and best practices across amalgamating entities for cost efficiency and improved risk management, and financial inclusion through wider reach.
• It would also enable creation of a bank with scale comparable to global banks and capable of competing effectively in India and globally.
• Strengths of individual banks - such as Dena Bank's relatively higher access to low-cost CASA deposits, Vijaya Bank's profitability and availability of capital for growth, and the extensive and global network and offerings of BoB will translate into advantages in terms of market reach, operational efficiencies and the ability to support a wider offering of product and services.
• The amalgamated banks will have access to a wider talent pool, and a large database that may be leveraged through analytics for competitive advantage in a rapidly digitalising banking context. Benefits would also flow as a result of wider reach and distribution network and reduction in distribution costs for the products and services through subsidiaries.
• The public at large shall benefit in terms of enhanced access to banking services through a stronger network, the ability to support a wider offering of product and services, and easy access to credit.

It would be herculean task to amalgamate banking services and IT set-up of these banks into a merged entity in just 3 months. The previous experience of SBI would help the Ministry of Finance to chart out the merger plan. The merger would create a behemoth banking company on the lines of SBI in these states: Gujarat, Maharashtra, Goa and Karnataka. While the 85,000+ employees of these banks are curious about the way forward, the stocks of Bank of Baroda, Vijaya Bank were seen at day high since the announcement of the merger.

Source - Press Information Bureau.