M&A Magazine

The government has decided to merger three banks – Bank of Baroda, Dena Bank and Vijaya Bank -- to reduce the amount of capital it needs to put into these banks and help clean their balance sheets. The three merged state-owned banks will the third-largest lender after State Bank of India and HDFC Bank. The name of the merged entity and the share-swap ratio will be decided soon. Bank unions, however, were quick to oppose the merger. While Dena Bank has been placed under the prompt corrective action framework by Reserve Bank of India with restriction 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 net non-performing assets at 11.04% while Vijaya Bank has 4.10% and Bank of Baroda 5.4%. The weaknesses of Dena Bank are being diluted by pooling them with the strengths of the other two. The merger of the three banks is a signal for further consolidation among the 17 state-owned ...

To order to bring in efficiency in the functioning of loss-making public-sector banks (PSBs) , the government is considering merging at least four such banks because of rising bad loans. The four banks are Oriental Bank of Commerce, Bank of Baroda, Central Bank and IDBI Bank with a combined loss of Rs 21,646 crore in FY18. In fact, barring Bank of Baroda, all the three banks are under Reserve Bank of India’s Prompt Corrective Action, a mechanism to maintain sound financial health of the banks. If any bank comes under the RBI’s Prompt Corrective Action, it cannot distribute dividends, remit profits and disburse fresh loans. Between the four banks, their gross bad loans or non-performing assets add up to nearly Rs 1,75,000 crore. Even Bank of Baroda, which is not under RBI’s Prompt Corrective Action, made a loss of Rs 3,342 crore in March 2018. Also, IDBI Bank has a gross NPA of over Rs. 55,000 crores at last count, which constitute 28 per cent of its total advances. This means mo...