The Merger of Three Public Sector Banks: BOB, Vijaya Bank and Dena Bank

The News

The Union Cabinet has approved the scheme of amalgamation for amalgamating Bank of Baroda, Vijaya Bank and Dena Bank, with Bank of Baroda as the transferee bankand Vijaya Bank and Dena Bank as transferor banks. The move will strengthen the weaken banks and decease NPA.

The Merger of Banks

  • The first time in India three banks mergers. It is three-way consolidation of banks. The amalgamated bank (Bank of Baroda) will be second largest bank in India after SBI. The total business would be Rs 15 Lakh crore along with 9500 domestic branches.
  • The merger will make globally competitive bank with economy of scale, effective policy management and banking unbanked.
  • The new bank will consolidate pool talented and experience human resource which can deliver better execution of services. It can develop new customer base, create new services as per demand, reduced infra and resource management cost. The new merger will use different technological means to reached to customer.

Other Banks Merger 

  • A bank pool their assets and liability to another bank, it is called bank merger.It happen when one or more bank facing debt crisis then weaken bank merge to stronger one.
  • Officially in 1st april,2017, The State Bank of India (SBI) had merged 5 of its subsidiary banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore with itself and took over Bharatiya Mahila Bank. SBI is largest public sector bank in India and among top 50 in world.
  • In 2018 LIC buy 51% stake in IDBI bank. The IDBI bank is debt ridden. it worst performer in bad loans.

Why Merger happened

Helping hand to Dena: With the merger, the government has given a lifeline to Dena Bank, whose gross non-performing assets (NPA) ratio in the quarter ended June 30, 2018, stood at 22%. The Bank is already under the Reserve Bank of India’s (RBI) supervision. In May last quater, it was barred from lending any further or recruiting new employees.

To Recover Debt: In the April-June quarter of the financial year 2018, Vijaya Bank posted a net profit of Rs144 crore, while BoB’s figure stood at Rs528 crore. In this period, Dena Bank faced a net loss of Rs721 crore.

Absorbing the financial crisis: One of the reasons for choosing these three banks was that the two stronger ones will be able to absorb the NPA of weak bank. Further none of bank will increase nonperforming assets.

Rules for Merging

Section 44A of the Banking Regulation Act 1949: Procedure for Amalgamation of Banking Companies

  • The Act provides the norms for voluntary mergers.
  • The force law said, no banking company, shall be amalgamated unless a draft resolution passed by majority of two-third shareholder of each company. It is said that 2\3 share holder agreed for amalgamation.

Section 45 of the Banking Regulation Act 1949: Forced Mergers

  • The Reserve Bank of India can apply to the Government for an order of moratorium for a banking company.
  • After considering the application, the Government may stay order of commencement or continuance of all action and proceeding against the company for fixed period of time.

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Key Points of Merger

Transferee and Transferor:

  • Vijaya Bank and Dena Bank are transferor banks and BoB is transferee bank, which means that business of Vijaya bank and Dena bank will be transferred to Bank of Baroda.
  • The transferee bank shall issue shares to the shareholders of transferor banks as per share exchange ratio. Shareholders of the transferee bank and transferor banks shall be entitled to raise their grievances, if any, in relation to the share exchange ratio, through an expert committee.
  • The Merger will take place from 1st April 2019.


Once the amalgamation done, both the transferor banks as a going concern shall be vested and  transferred transferee bank, including, its shares, all business, assets, rights, titles, claims, licenses, approvals and other privileges and all property, all borrowings, liabilities and obligations.

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Resource Management:

Every permanent and regular officer or employee of the transferor banks shall become an officer or employee and shall hold his office or service in the transferee bank such that the pay and allowance offered to the employees/officers/contractors of transferor banks shall not be less favorable as compared to what they would have drawn in the respective transferor bank.

Protection of employee:

The Board of the transferee bank shall ensure that the interests of all transferring employees and

officers of the transferor bank are protected

The Share Swap Ratio:

The share exchange ratio approved by Bank of Baroda under merger subject to regulatory approvals. The fair equity share exchange (share swap) ratio for the amalgamation is as given below:

  • Dena Bank’s shareholders will receive 110 equity shares of Bank of Baroda of face value Rs 2 for every 1,000 shares they held.
  • Vijay Bank shareholders will get 402 equity shares of Bank of Baroda for every 1,000 equity shares they held.

Addressing Grievances:

A Grievance Redressed Committee (GRC) headed by PramodKode has been set up to address the grievances of minority shareholders.

The minority shareholders are divided into two categories:

  • Those shareholders who either individually or collectively hold at least one percent of the total paid-up equity capital of BOB or Vijaya Bank or Dena Bank or,
  • 100 shareholders of BOB or Vijaya Bank or Dena Bank acting collectively.

Benefits of Merger:

Shock observer: The amalgamated bank will be better equipped in the changing environment to meet the credit needs of a growing economy, absorb shocks and capacity to raise resources and create new landing policies.

Economy of Scale: Economies of scale and wider scope would position it for improved profitability, wider product offerings, and adoption of technology and best practices across amalgamating entities for cost efficiency and improved risk management, and financial inclusion with the help of wider reach.

Presence in market: The newly formed Bank of Baroda will be such kind of a bank with scale comparable to global banks and capable of competing effectively in India and globally.

Strengthening Banks: The amalgamation will advantages in terms of market reach, operational efficiencies and the ability to support a wider offering of product and services. It enhance each banks network and accessibility.

Maximum Coverage: The new bank will have a wide talented pool, huge database and extensive network, all this enable bank for financial inclusion and provide massive product and service to customer. This will reduce expenditure cost.

Merger not a Right option:

One school of thought in Indian banking industry and even former RBI Governor said merging a small bank with large public sector bank is not right idea.


On whole we can say that merger is good step for debt redden bank like Dena bank. It consolidates human resource and assets which deliver profitable business in terms of products and services. In India it reduce bad loans and form new lending policies. The large bank can penetrate business to rural as well as urban areas. The important thing is that lending large corporate will be done in systematic manner. The assets and values and interest rate must be calculated by different methods, a bank must not rely on a single one.

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