Pedestrians pass a Bank of Baroda bank branch in Dubai. (Photographer: Chris Ratcliffe/Bloomberg)

Finance Ministry’s Alternative Mechanism Gives Nod For Bank of Baroda, Dena Bank, Vijaya Bank Merger

Public sector lender Bank of Baroda on Friday said the "Alternative Mechanism" of the Finance Ministry has accorded in-principle approval for its merger with Dena and Vijaya Bank.

"Ministry of Finance, Department of Financial Services on Dec. 20 has advised that the AM has accorded its in-principle approval to the proposed amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank," it said in a regulatory filing.

Bank of Baroda is the transferee bank, while Vijaya Bank and Dena Bank are the transferor banks in the amalgamation process, according to the filing.

The mechanism headed by Finance Minister Arun Jaitley had decided to merge three banks with a view to create global size lender, which will be stronger and sustainable.

The board of directors of Bank of Baroda had given an in-principle approval for the proposed merger of the three state-run lenders on Sept. 29. Both the other banks have also approved the merger proposal at their respective board levels.

The new entity to be formed with the merger of Bank of Baroda, Vijaya Bank and Dena Bank is expected to be operational in the beginning of the next financial year. The merged entity will have a combined business of Rs 14.82 lakh crore, making it the third largest bank after State Bank of India and ICICI Bank.

It will have better financial strength. The net NPA ratio will be at 5.71 percent, significantly better than public sector bank average of 12.13 percent.

The merger of these three lenders comes after India's top lender SBI merged its five subsidiary banks and took over Bharatiya Mahila bank last year, which has catapulted it to be among top 50 global lenders.

Shares of Bank of Baroda traded 0.30 percent up at Rs 115.20 a piece on Bombay Stock Exchange.