Rajiv Kumar, Department of Financial Services Secretary, announced that the decision was arrived at after meeting of the "alternative mechanism" which was set up during past year to consider consolidation of the Indian Banking Sector. "No employee will face any service conditions which are adverse in nature".
"We have seen the example of the five associate banks merging with State Bank of India". This proposal has to be passed by the Boards of the individual banks.
"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.More news: Showdown hearing not yet set: Dems, GOP arguing on witnesses
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The plan to merge three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank, will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks, Moody's Investors Service VP (Financial Institutions Group) Alka Anbarasu said. "This took its toll on the economy", he said. Till then, the three banks will carry on functioning independently. "The best of the service conditions will apply to all of them", Jaitley said.
Besides, Kumar said, Provision Coverage Ratio (PCR) would be better at 67.5 percent against average of 63.7 percent and cost to income ratio of the combined entity would come down to 48.94 percent as compared to average of 53.92 percent.
The government owns majority stakes in 21lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy. The Bank of Baroda's bad loan ration now stands at 12.4 percent. On the other hand, shares of Dena Bank jumped 19.75 per cent to end at Rs 19.10 - its highest trading permissible limit for the day. "Banks should be made strong and it will depend on process", he said. The government had only unearthed the NPAs which were sought to be brushed under the carpet, he added. He alleged that banks undertook above-normal lending during 2008-2014 as "if there was no tomorrow" resulting in huge non-performing assets to the tune of Rs 8.5 lakh crore.
The Finance Minister further added "In the first step of consolidation, we consolidated the subsidiaries of SBI with the parent bank to create a mega global bank".