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This resulted in the consolidated net profit of SBI going down to a mere ₹241 crore when the stand-alone net profit was ₹10,484 crore. The government is now looking to offload its majority stake in IDBI Bank to Life Insurance Corp. of India.

Individual boards of each of the three banks will have to approve the merger. The name of the merged entity is also likely to be decided later. What also needs to be seen is whether the merger will be effective in wiping out the mountain of bad loans that currently weighs down the performance of almost all public sector banks. It would also be interesting to observe whether the government extends the same strategy to other ailing PSU banks.

Bank unions were quick to oppose the merger. Calling it unwarranted, they said it was the government’s diversionary tactic to take the focus away from the huge levels of bad loans.

“There is no evidence that merger of banks would strengthen the banks or make it more efficient. We have seen the example of five associate banks merging with SBI. No miracle has happened. On the other hand, it has resulted in closure of branches, increase in bad loans, reduction of staff, reduction in business, etc. For the first time in 200 years, SBI has gone into a loss,” All India Bank Employees’ Association said in a statement.

Analysts are critical as well. “This merger is negative for Bank of Baroda and Vijaya Bank. The merger has to go through parliamentary approval, which will be a critical factor considering general elections are slated for next year,” said Ashutosh Mishra, an analyst at Reliance Securities Ltd. While Dena Bank has been placed under the prompt corrective action (PCA) framework by the Reserve Bank of India (RBI) with restrictions on lending, Vijaya Bank is among the only two lenders to have reported a profit in 2017-18. As a percentage of total assets, Dena Bank has the highest gross non-performing assets at 22.04%, while Vijaya Bank is at 6.34% and Bank of Baroda at 12.26%.

Dena Bank’s capital adequacy ratio stood at 10.6% on 30 June 2018, Vijaya Bank’s at 13.91% and Bank of Baroda’s at 12.13%. The combined entity’s capital adequacy rating will be at 12.25% with Tier-1 capital at 9.32% and net NPAS at 5.71%. The branch network of the combined entity will be nearly 9,500.

Currently, 11 of the 21 PSU banks are under PCA, with some being placed under restricted lending.