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The government's ambitious plan to merge three public sector banks – Bank of Baroda, Vijaya Bank and Dena Bank – could take at least a year, said a senior official in the banking sector.
The proposal to merge these banks, which is long overdue, is welcomed by the experts, because it will bring a considerable scale. The combined entity will become the second largest bank in the public sector, with a balance sheet in the range of 15 lakh crore.
"It's a remarkable step. But it's still not a mandate. It is the board of directors of the banks that must decide on one side and then the question will be taken in the formation of a system, submitted to the regulator and above all that will require the. parliamentary approval, "said Ashvin Parekh, managing partner of Ashvin Parekh Advisory. Services.
Mr. Parekh thinks the merger process will take nine to twelve months.
R Gandhi, former deputy governor of the Reserve Bank of India (RBI), also thinks the merger will take a year.
Regarding the choice of banks, Gandhi said the government made a cautious decision to choose the best bank among the laggards, namely Dena Bank.
Dena Bank has the highest net PPP ratio among the three banks (11.04%), the lowest capital adequacy ratio (10.6%) and the only one of the three having a negative return on equity. assets.
"But the overall impact of Dena on the merger will be limited because its size is small compared to other troubled banks," Mr Gandhi said.
The total activity of Dena Bank amounts to Rs 1.73 lakh crore, or about 11.5% of the activity of the merged entity. The combined net income of the combined entity will be 5.7%, with a solvency ratio of 12.25%.
"The long-term synergies would be positive and this entity would become a strong bank. Although Vijaya Bank is a profitable bank, it would benefit from the much larger Bank of Baroda synergies. Markets would look at this evolution with a horizon of 1 to 2 years, "said Sanjiv Bhasin, Senior Vice President, Markets and Corporate Affairs, IIFL.
One of the biggest challenges for the merger will likely be the management of human resources, Gandhi said.
"Even though they are public sector banks, each has a different culture. The approach and attitude do not consist in changing quickly. So it will depend on the leadership … you have to look at how the leaders are tackling the problem, "added Gandhi.
While Bank of Baroda and Vijaya Bank have their general manager and CEO, (the position at Dena Bank is vacant), and one of them must give up his post after the merger but the bankers said that this would not matter as the person can be transferred to the head of another public sector bank. (End)
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Unions oppose
The All India Bank Employees' Association opposed the government's proposal to merge the three public sector banks – Bank of Baroda, VIjaya and Dena Bank – and demanded that the decision be "reviewed and reconsidered".
"The total bad debts in the 3 banks, BOB, Dena Bank and Vijaya Bank is around 80,000 Rs crore," he said. Venkatachalam, secretary general, AIBEA said in a statement.
"The merger of these banks will not help recover bad debts. On the other hand, the focus will be on the issue of mergers and it's the government's game plan, "he said.
The union called for tough measures to recover bad debts.
The statement pointed out that of the 21 public sector banks, 19 are in loss due to bad loans and bad debt provisions.
"21 PSB set up, at 31-3-2018, the total operating result of Rs. 155,565 crore but because of provisions for doubtful debts at about Rs. 270,000 crores, there is a net loss of Rs. 85,000 crore, "the statement said.
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