Moving ahead with consolidation of public sector banks, Finance Minister Arun Jaitley on Monday announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank. The merged entity or amalgamated bank would be India's third largest.
There will be no adverse impact on employees of merged entity, the Finance Minister added.
On the reason of choosing these three banks for merger, Jaitley said that one of the bank (Dena Bank) was on RBI's Prompt Corrective Action (PCA) list and other two banks have the strength to subsume a weaker bank.
When asked about the timing of this merger amid falling value of Indian rupee, the Finance Minister said the business in government doesn't come to a standstill even if you have global challenge of high crude oil prices and strengthening of US dollar.
Department of Financial Services Secretary Rajeev Kumar said that the new bank will be strong competitive bank with economies of scale.
Kumar said that the new entity will protect employees' interests and that the government will ensure all possible capital support.
Meanwhile, Vijaya Bank MD Sankara Narayanan told CNBC TV 18 that he learnt about the merger only after the Finance Minister's press conference.
"There won't be any issues as far employees' safety or benefits go, merged entity will be strong enough to take care of all employees. The board meeting likely to be held in the next 10 days," Narayan added.
Batting for the LIC-IDBI deal, Finance Minister said that LIC owning a bank will make it more competitive, By owning a bank, LIC will derive better synergies, Jaitley said.
The move follows top lender State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.
Announcing the plan, Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability.
Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments.
Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs, he said.
"This amalgamated entity will increase banking operations," he said.
As was in case of SBI, no employee of the three banks would have service conditions that are adverse to their present one.
The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy.
But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.
The three banks will continue to work independently post merger.