Pedestrians walk past a Bank of Baroda bank branch in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Merger Worries ‘Exaggerated’, Says BoB; Not A Bailout, Says Dena; Will Not Be Drag, Assures Vijaya Bank

The merger of state-run Bank of Baroda, Dena Bank, and Vijaya Bank to form India’s third-largest lender will benefit the industry. More importantly, it will not be a drag on any of them, according to the heads of the three banks who foresee better growth opportunities after the proposed merger.

“The worry is reasonable, but exaggerated,” Bank of Baroda’s managing director and chief executive officer PS Jayakumar told BloombergQuint. The lenders, he said, will have dedicated teams for the merger, while the rest will continue business as usual.

As for Dena Bank, if there are more bad loans, “the government has made it clear that it will make a capital injunction if required”, Jayakumar said.

Watch the entire conversation with Bank of Baroda’s PS Jayakumar.

Also read: PSU Bank Consolidation: Necessary But Not Sufficient 

For the long term, most analysts agree that the outlook is positive, he said.

“This will definitely give a better growth on deposits and credit in the best interest of the country which will add definite value to the economic growth,” Vijaya Bank’s Managing Director and Chief Executive Officer Sankara Narayanan told BloombergQuint.

Watch the entire conversation with Dena Bank’s Ramesh Singh

'Bigger Positive For Dena Bank'

Analysts had expected shares of the relatively stronger Bank of Baroda and Vijaya Bank to be under pressure following the proposal to merge the three public sector banks.

Following the announcement, which came after market hours on Monday, shares of Bank of Baroda fell nearly 14 percent, the most in more than three years, in early trade on Tuesday. While Dena Bank jumped 20 percent—its biggest intra-day gain in more than 10 years— Vijaya Bank’s shares gained nearly 10 percent.

“It is certainly a bigger positive for Dena Bank but it is not a bailout package. Dena Bank is very strong across Gujarat, Maharashtra, and Chattisgarh, Vijaya Bank is strong in the south,” said Dena Bank’s Executive Director Ramesh Singh.

Dena Bank is currently under the prompt corrective action framework and has been restrained from further lending. It has a gross non-performing asset ratio of 22 percent—among the highest across the industry. Vijaya Bank, on the contrary, is among the better performing public sector banks with a gross NPA ratio of 6.9 percent. Bank of Baroda, the largest of the three, has a bad loan ratio of 12.4 percent.

NPAs Getting Resolved: Vijaya Bank

No bank is a “drag”, said Narayanan. “The issues of NPA in any bank is because of various factors. It’s all getting resolved through NCLT’s (National Company Law Tribunal) recoveries and other things that are happening quite positively across the banking sector.”

Watch the entire conversation with Vijaya Bank’s Sankara Narayanan