The season of bank mergers

The government announced the merger of Bank of Baroda ( BoB), Dena Bank and Vijaya Bank, which will make the combined entity the third largest lender in the country.

The decision aligns with the government’s plan to merge public sector lenders and promote consolidation in the sector marred by loads of nonperforming assets ( NPAs). The NPA ratio of PSBs stood at 13.88 per cent while that of private banks stood at 4.48 per cent at the end of Q1 FY19.

With the BoB- Vijaya-Dena merger, BoB shareholders stand to lose the most, while Dena Bank investors will gain. After SBI and BoB- Vijaya- Dena merger, there are 18 public sector banks left.

Further, there is speculation of a merger of Punjab National Bank, Indian Bank, Indian Overseas Bank merger and Canara Bank, Syndicate Bank and UCO Bank. The concept is not new in India. In 1991, it was suggested that India should have fewer but strong PSBs. ● DENA BANK: Mumbai- based Dena Bank had gross NPAs of ` 16,361.44 crore for the fiscal ending March 2018.

During the last three fiscals, the bank also posted net loss amounting to ` 3,722.09 crore.

● VIJAYA BANK: The Bangalore- based lender is on a better financial footing than Dena Bank. Gross NPAs of the bank for the fiscal ending March 2018 were ` 7,526.09 crore. The bank is the healthiest among the three when it comes to financials, but has been unable to escape from the rising NPAs.

● BANK OF BARODA: The Vadodara- based lender is the largest lender among the three banks. Gross NPAs of the bank for the fiscal ending March 2018 were ` 56,480.39. With the merger process, the quality of BOB assets are set to suffer as it would have to deal with rising assets of its weaker counterpart Dena Bank.