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Bank of Baroda Merger

This document summarizes the merger of Dena Bank and Vijaya Bank with Bank of Baroda. The merger created India's third largest bank with over 9,500 branches and a total business of ₹15 trillion. Some benefits of the merger include increased geographic reach, reduced number of public sector banks and banks under PCA restrictions, and capital infusion of ₹5,042 crore by the government. However, the document notes mergers alone may not be enough and governance issues still need addressing for long term success. Branches may need rationalization and costs reduced for the merged entity to improve its profile.

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Shubham Doshi
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738 views3 pages

Bank of Baroda Merger

This document summarizes the merger of Dena Bank and Vijaya Bank with Bank of Baroda. The merger created India's third largest bank with over 9,500 branches and a total business of ₹15 trillion. Some benefits of the merger include increased geographic reach, reduced number of public sector banks and banks under PCA restrictions, and capital infusion of ₹5,042 crore by the government. However, the document notes mergers alone may not be enough and governance issues still need addressing for long term success. Branches may need rationalization and costs reduced for the merged entity to improve its profile.

Uploaded by

Shubham Doshi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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& Ballooning NPA’s.

Dena Bank, Vijaya Bank merges with Bank of Baroda

 With a total business of about ₹15 trillion, the merged entity is now the third-
largest lender in India
 This is also India's first-ever three-way consolidation of banks in India

Beating private sector lender ICICI Bank, state-run Bank of Baroda (BoB) has
become India's third largest bank after its merger with Dena Bank and Vijaya
Bank came into effect on 1st April,2019. With a total business of about ₹15 trillion,
the merged entity is the third-largest lender in India, after State Bank of India
(SBI) and HDFC Bank
Positives
1. In terms of the number of branches, Bank of Baroda ranks second in India
across all banks. The merged entity has nearly 9,500 branches as Dena
Bank and Vijaya Bank will help BoB increase its reach in the western,
southern and north-eastern regions. However, to achieve economies of
scale and remove overlapping, it is expected that some branches of either
of the banks will be shut down.
2. The new merged Bank of Baroda has an advances and deposits market
share of 6.9% and 7.4%, respectively, according to a Motilal Oswal report.
3. After the merger, the number of public sector banks (PSBs) has reduced to
19 from 21
4. The merger has also brought down the number of banks kept under the
Prompt Corrective Action (PCA) framework by the Reserve Bank of India
(RBI) to four. Dena Bank is among the five PSU banks kept under PCA watch
over burgeoning losses and NPAs.
5. Based on the third quarter results of Dena Bank and Vijaya Bank, key credit
metrics of the merged entity, with the exception of profitability, will be
broadly similar to that of Bank of Baroda, according to a Moody's report.
6. To strengthen the balance sheet of the merged entity and meet its credit
and contingency needs, the government has decided to infuse ₹5,042 crore
into Bank of Baroda by way of preferential allotment of equity shares.
7. According to the share swap ratio, shareholders will receive 402 equity
shares of Bank of Baroda for every 1,000 equity shares held of Vijaya Bank.
For every 1,000 shares of Dena Bank held, investors will receive 110 equity
shares of Bank of Baroda. On the basis of this share swap ratio, the
government’s shareholding in the merged entity will rise from 63.7% to
65.7%.
8. The new Bank of Baroda is expected to create a globally competitive Bank
by taking the advantages of economies of scale, synergies for the network,
low-cost deposits and subsidiaries. It is also expected to improve customer
base, market reach, operational efficiency and the capability to offer a
wider bouquet of products and services for customers.
Way Forward
 Without addressing the governance issues in the banks, merging two or
three public sector banks may not change the architecture.
 Unless there is a change in the operating structures, mergers will may not
deliver the desired results in the long run.
 Giving the PSBs autonomy along with accountability.
 Merged entity will require capital support from the government, otherwise
such a merger would not improve their capitalisation profile.
 The merger will yield the desired results if these banks rationalised their
branches, looked to reduce costs and handled people issues well.
 RBI should continue to give banking licences for more small finance banks as
well as universal banks along with bank mergers.

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