Mumbai: Public sector lender Dena Bank on Monday said its board has approved the government proposal to merge the bank with Bank of Baroda (BoB) and Vijaya Bank. This is the first of the three state-run banks to approve their proposed amalgamation after it was announced by the government on 10 September.
A senior Dena Bank executive, who didn’t wish to be named, said the board meeting was the first step. The board’s decision will be forwarded to the government. “The investment bankers will be appointed only after the board meetings of the other banks take place," said the executive.
Directors of Dena Bank also discussed the broad contours of setting up a steering committee and different coordination committees to work out the bank merger, said another senior bank official.
The committee is expected to be formed within 10 days after the respective boards of Vijaya Bank and Bank of Baroda approve the merger plan. The committee could call for bids from investment banks and look at selecting a banker to chalk out the merger strategy, the official added.
“We are pleased to inform you that the board of directors of the bank, at their meeting held on 24 September 2018, has considered and decided to recommend the amalgamation of our bank with Bank of Baroda and Vijaya Bank, in line with the department of financial services, ministry of finance, Government of India proposal, dated 17 September, 2018," Dena Bank said in a filing to the exchanges.
The bank management had sent a letter to employees on 18 September, telling them that the merger is a confidence-building measure taken by the government of India, considering the financial position of the bank. Dena Bank’s capital adequacy ratio stood at 10.6% and its gross bad loans comprised 22.7% of its total assets as on 30 June. The Reserve Bank of India (RBI) had subsequently asked it to stop issuing new loans.
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The Dena Bank management had also said in its letter that in the current state, where the banking industry is fragmented with 21 public sector banks, having limited differentiation, coupled with sub-optimal scale of operations and unhealthy competition, “consolidation is inevitable".
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“We would also like to state that Denaites should not have any apprehension on the amalgamation, since no employee will face any adverse service conditions," said the letter signed by executive directors Rajesh Kumar Yaduvanshi and Ramesh S. Singh. Mint has seen a copy of the letter.
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On 10 September, the government had proposed the merger of the three state-owned banks. The merged entity, comprising two relatively stronger banks and a weak one, will be the third-largest lender in India, after State Bank of India and HDFC Bank Ltd, with total business of ₹ 14.82 trillion.