Three-way amalgamation of BoB, Dena Bank, Vijaya Bank takes wings

The proposed amalgamation of Bank of Baroda (BoB), Vijaya Bank and Dena Bank has moved a step forward with the Alternative Mechanism (AM) headed by Finance Minister, Arun Jaitley, giving its in-principal approval for the structure of the amalgamation.

As per the in-principle approval, BoB will be the ‘transferee bank’ and Vijaya Bank and Dena Bank will both be ‘transferor banks’. This would mean that the amalgamation process, which would lead to formation of the country’s third largest bank, would not involve creation of fourth entity where the assets of the three banks would get transferred, said banking industry observers.

It would also mean that BoB will retain its brand identity while the other two Vijaya Bank and Dena Bank will cease to be separate legal entities.

In the recent months, Vijaya Bank is understood to have made a case with the Government that it is as strong and well managed as BoB and therefore should not lose its brand identity under the amalgamation process, sources said. However, this has not passed muster with the Government which has now broadly settled on the structure and nature of amalgamation.

This in-principle approval of the AM, which was set up by the Cabinet last year to hasten the process of consolidation of public sector banks, has now been conveyed to the stock exchanges. Indications are that the capital markets regulator SEBI will be moved to seek exemption from takeover code obligations, if any that may arise from the three-way amalgamation.

Based on this AM’s in-principle approval, the three banks are expected to take steps in accordance with law and SEBI requirements. The final scheme of amalgamation will have to be notified by the Central Government in consultation with RBI.

AM had on September 17 proposed the amalgamation  of state-owned BoB, Dena Bank and Vijaya Bank to create India’s third-largest bank. The other members of AM are Defence Minister Nirmala Sitharaman and Railways Minister Piyush Goyal. The aim is to create a mega bank that would be sustainable and whose lending ability will be far higher, Jaitley had then said.

The Centre has gone in for an amalgamation that involved two strong banks and a weak bank, thus avoiding the merger of two weak banks. The envisaged amalgamation will be the first-ever three-way consolidation of banks in the country, with a combined business of ₹ 14.82 lakh crore, making it the third largest bank after State Bank of India (SBI) and ICICI Bank.

The merger of the three banks would be through share swap, which will be the part of the scheme of amalgamation. Once the amalgamation of BoB, Vijaya Bank and Dena Bank is completed, the number of state-run banks will come down to 19.

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