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Finance minister Arun Jaitley proposed Monday the merger of Bank of Baroda, Dena Bank and Vijaya Bank. The amalgamation was suggested to increase ‘overall efficiency’ of the banks as well as help weaker banks like Dena Bank get absorbed by more sustainable mega consolidations.

ThePrint asks Dena, Vijaya, Bank of Baroda merger: Raising efficiency or burdening performing banks?



The amalgamation of these banks does seem like a challenge

Ashvin Parekh
Managing partner, Ashvin Parekh Advisory Services LLP

There are several issues that have to be factored in post the merger. Any amalgamation, whether between private sector entities or public sector entities, requires certain compatibility.

The cultural backgrounds of these banks are very different. All the three banks have traditionally operated in different parts of the country. Moreover, their approach is also different. Dena Bank was referred to as a trader’s bank whereas Bank of Baroda has dealt with mid-cap to large-cap companies. The credit as well as recovery experience is different. Thus, amalgamation does seem like a challenge.

That being said, a smooth amalgamation would depend entirely on the leadership. From ICICI to Axis Bank, the one thing that stands out is that these banks have had long-term leadership, which has proven effective. Chanda Kochhar and Aditya Puri are some examples of long-term and successful leadership.

It would help if the leader is from within the organisation and not an external individual. SBI enjoys a distinct character because the leader comes from within the bank. If the government is so keen on this merger, then it must also ensure that someone from one of these three banks who understands the organisation rises through the ranks and takes up the leadership role. Only then can we be assured of some longevity as well as effectiveness in the leadership of this new organisation.


Merger of banks is playing with tax payers’ money

C.H. Venkatachalam
General secretary, All India Bank Employees’ Association

This proposal comes as no surprise as the government has been constantly trying to merge banks. This is a fruitless exercise which will only create more problems for our economy.

Is there any evidence that a merger has helped in creating strong and efficient banks? Five associate banks of the SBI have been merged with the SBI. No miracle happened after it. On the other hand, it has resulted in the closure of branches, increase in bad loans, reduction of staff, and a reduction in business. For the first time in nearly 20 years, the SBI has gone into a loss. We need to analyse the reasons for this.

Bad loans for all these three banks put together is around Rs 80,000 crore. The merger of these banks will not help in the recovery of bad loans. On the other hand, the focus will now be shifted to issues arising from mergers. Do we have the time to waste? We need to focus on other things—recovery of bad assets, increasing banking penetration and improving the balance-sheets. We will now focus on other issues such as integration of branches and other systems.

By merging banks, the government will not be able to solve problems. The government has said that we need more banks and that the Reserve Bank of India has been approving new licenses, but we want to reduce the number of public sector banks. It defies logic. Earlier, the LIC decided to take over the ailing IDBI Bank. This is playing with tax payers’ money.

Also readRaghuram Rajan NPA note- Congress legacy or Modi didn’t check bad loan crisis in time?


It is almost impossible to find another country with as many banks

Nirupama Soundararajan
Senior Fellow & Head of Research, Pahle India foundation

Bank mergers are long overdue. A couple of years ago, SBI’s subsidiaries and the Bharatiya Mahila Bank were merged with the SBI. India’s banking sector is diverse with various kinds of banks vis-à-vis purpose and ownership. It is almost impossible to find another country with as many banks.

Multiple commissions and reports have emphasised the need for mergers in the Indian banking sector. One of the most commonly cited reasons is that Indians need to create banks that are global players. We have none as of now. However, with the global financial crisis and new BASEL committee norms, the reason for mergers is now more about monetary requirements.

There has rarely been any resistance to the idea of bank mergers, but two reasons have often acted as deterrents. First, an ideal situation would be where mergers and acquisitions take place organically. Under current circumstances, this seems far-fetched.

With restrictions on foreign ownership and deteriorating balance-sheets, it is unlikely that any private or foreign bank will organically merge with/acquire another bank, much less a public sector bank. Hence, the only way forward is to merge some public sector banks.

Second, the only form of vociferous dissent has come from trade unions in the past, and this is not an easy problem to solve.

This merger may have come a little too late, but it’s a start nevertheless. First, it will, in the long run, reduce the monetary burden on the government in terms of BASEL 3. Second, it may help consolidate the NPA problem for public sector banks, which would mean better use of recapitalisation money. Third, it may eventually ease the regulatory burden on RBI. Fourth, it’s probably the next best alternative to disinvestment

This merger may not solve the NPA problem or existing governance issues on bank boards, but a more streamlined public sector banking sector is certainly a good place to begin.

Merger a bold step & win-win for all the three banks

Mahua Venkatesh
Associate Editor

Finance minister Arun Jaitley’s announcement Monday evening took many by surprise. The merger is a bold step by the NDA government and a win-win for all the three banks.

Currently, there are 21 public sector banks, all fighting with each other for increased market share.

SBI, the largest lender in the country, managed to feature among the top 50 banks globally only about a year ago. The reason was merger – all five associate banks of SBI were merged with the mother bank. The Bharatiya Mahila Bank was also merged with SBI.

Now, contrast this with China. At least four Chinese banks feature among the top banks in the world.

The banking sector in India is grappling with serious challenges. The government has already announced a Rs 2.11 lakh crore recapitalisation package to support these banks. Many of these lenders are facing severe cash crunch, although Vijaya Bank has notably stood tall in this crisis.

Many may question the logic behind merging a performing bank with two others. This has in fact been long overdue. Mergers in the public sector banking arena must be undertaken without delay and it is not necessary to choose only weak banks for mergers.

All India needs is about half a dozen government banks that are strong, performing and can become global banks.

The Reserve Bank of India has barred Dena Bank, which registered a net loss of Rs 1924 crore for the financial year 2017-18, from lending or even hiring more employees. For Dena Bank employees, the merger should come as a huge relief.

By Mahua Venkatesh and Fatima Khan. 

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