Gold Silver Reports (GSR) – The government plans to merge Bank of Baroda, Dena Bank and Vijaya Bank as part of efforts to tackle a pile of bad loans plaguing the banking sector. The three banks will create the third largest bank in the country.
The combined entity will have a strong presence across the nation with more than 34% of low-cost deposits, a capital buffer of nearly 12% and a business book of Rs 14.82 lakh crore.
Bank of Baroda is the biggest of the three with Rs 10.29 lakh crore of total business, followed by Vijaya Bank at Rs 2.79 lakh crore and Dena Bank at Rs 1.72 lakh crore.
“The government has suggested this to the banks to consider these proposals, and hopefully shortly the boards will meet and after adequate consultation will take a decision,” said finance minister Arun Jaitley.
Compared to Dena, Bank of Baroda is a turnaround bank that has been improving its performance rapidly. Its gross NPA levels are in lower double digits and the bank posted a profit, which more than doubled, in the latest quarter on higher net interest income. In 2015, the government had effected certain top-level management changes in Bank of Baroda by bringing in private sector candidates and this appears to have helped its fortunes.
Here’s what the merged entity could look like:
| Parameters | Bank of Baroda | Vijaya Bank | Dena Bank | Amalgamated bank |
|---|---|---|---|---|
| Total business (Rs lakh cr) | 10.29 | 2.79 | 1.72 | 14.82 |
| Gross advances (Rs lakh cr) | 4.48 | 1.22 | 0.69 | 6.4 |
| Total deposits (Rs lakh cr) | 5.81 | 1.57 | 1.03 | 8.41 |
| Branch presence | 5,502 | 2,129 | 1,858 | 9,489 |
| Return on assets (%) | 0.29 | 0.32 | -2.43 | -0.02 |
| Common equity Tier-1 capital (CET) (%) | 9.27 | 10.35 | 8.15 | 9.32 |
| Capital to risk weighted assets ratio (CRAR) (%) | 12.13 | 13.91 | 10.6 | 12.25 |
| Net NPA | 5.4 | 4.1 | 11.04 | 5.71 |
| Employees | 56,361 | 15,874 | 13,440 | 85,675 |
Here’s a look at how the merged bank will stack up against the other government-owned banks:
| Parameters | Amalgamated bank | SBI | Bank of India | Punjab National Bank |
|---|---|---|---|---|
| Total business (Rs lakh crore) | 14.82 | 47.37 | 8.78 | 10.84 |
| Gross advances (Rs lakh crore) | 6.4 | 19.9 | 3.63 | 4.53 |
| Total deposits (Rs lakh crore) | 8.41 | 27.47 | 5.14 | 6.36 |
| Branch presence | 9,489 | 22,428 | 5,106 | 6,940 |
| Return on assets (%) | -0.02 | -0.57 | 0.06 | Negative |
| Tier-1 CET (%) | 9.32 | 10.53 | 8.01 | 7.33 |
| CRAR (%) | 12.25 | 12.83 | 11.43 | 9.62 |
| Net NPA | 5.71 | 5.29 | 8.45 | 10.58 |
| Employees | 85,675 | 2,59,980 | 48,680 | 74,897 |
While the government has assured there will be no job losses, bank unions are up in arms. Several of them are set to demonstrate across the country against the merger plan. Even BoB and Vijaya Bank shareholders are unlikely to be happy since their assets could get diluted by Dena Bank’s absorption.Take the Bank of Baroda, Dena Bank and Vijaya Bank merger for example.
The combined entity will have a total gross NPAs of Rs 79,320 crore, which as a percentage of total advances stand at around 13 percent. How will the merger help in addressing this problem? What is happening here is only the process of bundling of a few small problems into a bigger one. The work culture and management inefficiencies that led these banks to the present situation, and the onus on the government to feed capital to these banks all remain the same. Had it been a sell-off instead of a merger among PSBs, fresh private money would have come in and more efficient management which would have been accountable for efficient use of that money.
