Power of Three: To Save One

In a bid to have a banking environment with fewer but healthier lenders, India witnessed its first ever merger of 3 public sector banks.


  1. In the first 3-way merger in the country’s history, two smaller public sector banks, Dena Bank and Vijaya Bank merge into Bank of Baroda
  2. The amalgamated entity emerges as the country’s second largest public sector bank and the third largest public lender
  3. The government will infuse Rs. 5,042 Crore by way of preferential allotment of equity shares to help strengthen the balance sheet of the merged entity
  4. The move is part of the government’s strategy to tackle the growth menace of bad loans and create fewer but healthier banking institutions


In a first of its kind public sector merger in India, two smaller Public Sector Banks (PSBs), Vijaya Bank and Dena Bank merged into Bank of Baroda. The three-way fusion aims to create a healthier entity, which overtakes ICICI Bank to become the third largest lender in the country (after SBI and HDFC Bank).

The new entity is envisioned to be a globally competitive banking institution – a bank which is able to offer a wider portfolio of products and services with better resources.

Existing Dena Bank and Vijaya Bank network reach will enable BoB to cover western, southern and north-eastern regions. This gives the combined entity a greater market reach, better operational efficiency and a bigger customer base. The new formed mega bank will have a total business of about ₹15 trillion.

The new amalgamated mega bank

The customers will continue with the same account numbers, IFSC Code, MICR Code along with their current cheque books and ATM cards. Interest rates on loans and fixed deposits are expected to remain the same.

All Dena and Vijaya Bank branches are now under the BoB banner. This means BoB overtakes debt-ridden Punjab National Bank to emerge as the second largest PSB. With mammoth numbers, the entity now holds 9,490 branches, 13,400 ATMs with 85,678 employees serving 12 Crore customers.

The three-way merger results in a combined business of Rs. 14,82,422 Crore, deposits of Rs. 8.75 Lakh Crore and advances of Rs. 6.25 Lakh Crore. Infusion of Rs. 5,042 Crore from the government by way of preferential allotment of equity shares, will help strengthen the balance sheet of the merged entity and meet its credit and contingency needs.

As per reports, the backend technology integration is expected to be smooth, with all three banks running on the same Finacle CBS platform.

However, Markets feel the overall cultural integration of the three banks might have an impact of the new bank’s near-term performance. On the ground, some branches of the banks are expected to be shut down to reach economies of scale and remove overlapping.

Why the merger

The merger is part of the government’s strategy to tackle the recent spurt in bad loans (NPAs) which has turned several high-profile banks in to debt-ridden entities. Finance Minister Arun Jaitley has, on multiple occasions, emphasized on the need to have stronger consolidated banks.

Being the majority shareholder in 21 banks (accounting for more than two-thirds of the banking assets in India), the government has been analysing various models of PSB consolidation.

BoB is the second step in the process. Its success is expected to give the government the needed conviction to go ahead with a large-scale overhaul of the system. Finance Minister Arun Jaitley had said a month ago:

“There are some reforms which are born out of compulsion but many reforms are born out of conviction. I must admit that for the government, this one is a combination of both,”

The seeds of the grand merger were sown after the successful first such experiment of the government with SBI. On the same date two years ago, SBI took in five associate banks (SBBJ, SBH, SBT, SBP and SBM) and Bhartiya Mahila Bank. That move propelled SBI among top 50 banks in the world, with its post-merger numbers stood at 37 crores customers, 24,000 network branches and 59,000 ATMs.


The success of the SBI experiment gave government the confidence to layout a plan to reduce the number of PSBs from the existing 21 to 12, and in the process create 3 to 4 global sized banks, as per the 3-tier structure. The BoB merger brings down the number of PSBs to 19.

Some bankers are concerned

However, a number of bankers in the country are not in cohesion with the government’s idea. Critics have voiced out that instead of mergers, the government needs to initiate wide-spread recovery of NPAs and financial inclusion. Soumya Dutta, National General Secretary, All India Bank Officers’ Confederation, had commented:

“The need of the hour is creation of more public sector banks to carry out ambitious projects like financial inclusion and agricultural loans, instead of merging three banks. Wilful defaulters and economic offenders should be published. Even if 20% of recovery is done, all PSBs will be in good shape.”

A few days before the merger, Supreme Court rejected petitions seeking to stay the move. The scepticism emerges from the poor performance of one of the trios i.e. Dena Bank. The institution has one of the industry’s highest gross NPA ratio. RBI had barred Dena Bank from lending any further or recruiting new employees back in May 2018.

The merger saves Dena Bank which is under RBI’s Prompt Corrective Action (PCA) framework for burgeoning losses and NPAs. However, Dena Bank’s bad assets will definitely bring down the mood of BoB and Vijaya Bank stakeholders.


The critics have argued that the government is trying to throw a lifeline to the loss-making bank. Dena Bank posted a net loss of Rs. 721 Crore compared to Vijaya Bank’s net profit of Rs. 144 Crore, BoB’s Rs. 528 Crore profit in the April-June quarter of FY 2019. This was bound to arouse concern in stakeholders. A similar sentiment was echoed by Ashutosh Kumar Mishra, Banking Analyst with Reliance Securities said:

“These banks will have to compensate for the bad asset quality of Dena Bank and it is likely they will be very unhappy with the move and this may also lead to some hiccups in the merger process,”

But the market perception was positive as Bank of Baroda shares gained 3 per cent after the merger. As per Moody’s report, BoB’s profitability is predicted to be ‘pegged down’ by the NPAs of the other two banks. Finance Ministry had assured the concerned, that two stronger banks will be able to absorb the weaker entity.

Vijaya Bank staff and also Bank Unions came out against the merger, going on strikes in December. This was followed by a petition filed by All India Bank Officers’ Confederation and All India Vijaya Bank Officers’ Association in the various High Courts, claiming that the merger affected the fundamental rights of a large number of employees. Prakash Rao, general secretary, All India Vijaya Bank Officers’ Association, had said:

“Vijaya Bank has consistently been a profit-making bank. Suddenly merging it with Dena Bank, which is in a mess, and Bank of Baroda will create many problems. We are disappointed with this move. It will dampen the morale of the employees.”

A number of other struggling PSBs are slated for the same fate.

As per the Merger List, PNB will acquire OBC, Allahabad Bank, Corporation Bank, and Indian Bank. Bank of India will take Andhra Bank and Bank of Maharashtra under its umbrella, Canara Bank will take up UCO Bank, Syndicate Bank, and Indian Overseas Bank; and Union Bank of India will merge with IDBI, and Central Bank of India.


Is it a wise step?

The merger is expected to be great for the economy in the long run. A large capital base will enable the bank to offer bigger loans and still be healthy and resourceful enough to bear the brunt of NPAs. Rajiv Kumar, financial services secretary said:

“It (the merged bank) will be a strong competitive bank with economies of scale, network synergies, low-cost deposits and subsidiaries, and the possibility of greater outreach and expansion,”

With extensive consolidations, the government expects to crack down on private business practice of forfeiting loans to smaller banks. The larger combined banks will in turn get a larger distribution channel for themselves, adding to the operational strength and health of the PSU.

PS Jayakumar, CEO of Bank of Baroda who is expected to head the merger, said that although the treasuries of all the three banks have been conjoined, the actual merger of systems with take close to twelve months. However, he is confident that the new entity will be a profitable one from early on, marking success for the consolidation plan. In an interview with ET, PS Jayakumar said:

“It should be making profit on day one because both BoB and Vijaya are bigger denominators, which are turning profits. I am also expecting in general that we are at the end of the provisioning cycle and we should start seeing recoveries coming along. “

While the government foresees a vision wherein the Indian economy’s reigns lie in its hands with three to four world class banks taking care of the country’s development. How old NPAs and deficits will influence the health of the new bank moving forward will be crucial to the success of the grand merger scheme. But high hopes are expected from the further expansion of the young and promising Bank of Baroda to strengthen India’s banking system.


  1. The merger saves Dena Bank which is under RBI’s Prompt Corrective Action (PCA) framework for burgeoning losses
  2. The move will however but will peg down the profitability of the other two banks in the merger
  3. The Government plans to reduce the number of PSBs from the existing 21 to 12, and in the process create 3 to 4 global sized banks
  4. Banker Unions had come out against the merger, asking the government to initiate wide-spread recovery of NPAs and concentrate on financial inclusion


DKODING as the name suggests is on a crusade to bring out the ‘OTHER SIDE OF THE STORY’ in a world drowning with fury and frenzy. It provides deeper insights and perspectives beyond NEWS.

Breaking burning issues through a narrative that is fresh, fearless and fiery.


* indicates required