India to merge three state-owned banks to tackle bad loans

18 September, 2018, 10:18 | Author: Teresa Adams
  • Image source:IANS

DFS secretary Rajiv Kumar said there is no need to amend the Bank Nationalization Act.

Capital support to the merged entity of Dena Bank, Vijaya Bank and BoB would be ensured, he said.

"Alternative mechanism under Finance Minister, Arun Jaitley suggests bankofbaroda, VijayaBankIndia & dena_bank to consider amalgamation; to create India's 3rd largest globally competitive bank", he tweeted on Monday evening. The other members of the panel include Railways Minister Piyush Goyal and Defence Minister Nirmala Sitharaman.

"No employee will face any service conditions which are adverse in nature".

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A senior banker said that with the amalgamation announcement, the government may be moving a step closer to implementing the Narasimham Committee recommendation on structural reforms.

Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs, he said.

Employees of three banks should not worry about their career in the wake of the merger announced by the government, said Finance Minister. Meanwhile, All India Bank Employees' Association has opposed the move saying what is required is an expansion of banks and not a merger of banks. "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said. The government had only unearthed the NPAs which were sought to be brushed under the carpet, he added. The banking industry was saddled with bad loans - called non-performing assets in banking parlance - of Rs 8.50 lakh crore. "And therefore, now the alternative mechanism has gone ahead and taken this decision today", Jaitley said.

"It was only after 2015 that the real picture was known and the government and the RBI started taking concrete steps".

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"The envisaged amalgamation will be the first-ever three-way consolidation of banks in India, with a combined business of Rs 14.82 lakh crore, making it India's third largest bank", an official statement said.

"Capital Adequacy Ratio (of the amalgamated bank) at 12.25 per cent is significantly above the regulatory norm of 10.875 per cent and the stronger amalgamated bank will be better positioned to tap capital markets", the government said.

In the short-term, however, there could be an impact on the share price of state-run banks as few would be ready to take long term bets on them, said Asutosh Mishra, banking sector analyst at Mumbai-based Reliance Securities.

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