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In announcing the plan, Union Finance Minister Arun Jaitley said the merger would make banks stronger and more sustainable and increase their lending capacity.
In the context of the merger, he said bank loans were becoming weak, hurting business sector investment.
Government at RBI: Identifying public sector banks for mergers
Government-controlled banks are estimated to hold 90 percent of nonperforming loans, and 11 of 21 operate under an emergency program, overseen by the RBI, which limits new lending. The government has been fighting for years to clean up its banks – which have the highest bad debt ratio, after Italy, among the 10 largest economies in the world.
In addition, many banks were in a fragile situation due to excessive lending and skyrocketing NPAs, he said.
"This merged entity will increase banking operations," he said.
"No employee will experience any other service conditions, and the best terms of service will apply to everyone," added Jaitley.
Jaitley said the merger process "will increase banking operations". The bank council will meet to define an appropriate roadmap and consider the process, added the Minister of Finance.
Financial Services Secretary Rajiv Kumar said the boards of the three banks will consider the proposed merger. "The merger will help improve operational efficiency and customer services."
The merged bank would be India's third largest bank and would be a competitive lender with economies of scale, he said, adding that the three would have synergies for the network, low-cost deposits and subsidiaries.
The government will continue to provide financial support to the amalgamated bank, Kumar said.
An alternative mechanism under FM suggests @bankofbaroda, @VijayaBankIndia & @dena_bank to consider a merger; to … https://t.co/HutVXtilj7
– Rajeev kumar (@rajeevkumr) 1537188525000
(With agency contributions)
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