While Bank of Baroda (BoB) will get access to the regional reach and business of the other two banks, Vijaya Bank and Dena Bank will benefit from the global network strength of the former, Bank of Baroda’s MD and CEO P S Jayakumar said, outlining the beneficial synergies that will arise out of the amalgamation.
With State Bank of India earlier acquiring five of its associate banks and Life Insurance Corporation in the process of taking over IDBI Bank, the amalgamation of Dena Bank would still leave the government with nine more banks on a weak wicket.
Apart from IDBI Bank and Dena Bank, the nine other banks currently under the RBI’s PCA framework are Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.
Banks are put under the PCA when they breach key regulatory requirements relating to capital adequacy ratio, return on assets and amount of NPAs. PCA banks are restricted from expanding number of branches, staff recruitment and from increasing the size of their loan book.
Cost to income ratio of the amalgamated entity is estimated at 48.94 per cent, better than the PSB average of 53.92 per cent, while its Capital Adequacy Ratio at is estimated at 12.25 per cent, higher than regulatory requirement. Jaitley said that no employee on the combined entity will face any service conditions which are adverse in nature. The best of the service conditions will apply to all of them, he said.
Jaitley blamed the UPA government for indiscriminate lending, which led to the massive rise in stressed assets in the banking sector. He said the present government has tried to cleanse the bad loan mess, with steps such as asset quality review of the banks, adequate provision against stressed assets and enactment of the Insolvency and Bankruptcy Code to address the logjam in the sector.
In his presentation, Secretary Rajiv Kumar said the amount of NPAs have started declining even as recoveries have picked up pace by the state-owned banks.
In a separate statement. the government said: “Leveraging of networks, low-cost deposits and subsidiaries of the three banks has the potential of yielding significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers.”