Dena Bank, Vijaya Bank and Bank of Baroda to be merged

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Still, heavyweight Bank of Baroda dragged the Nifty PSU bank index as it dropped as much as 2.4 percent to its lowest since July 26. Bank of Baroda, the bank with the strongest fundamentals among the three, saw its stock plunging.

Dena Bank reported a loss of Rs 1,923.20 crore against Rs 863.60 crore previous year.

The merged entity will have total assets of more than Rs 14 lakh crore. The first of the seven mergers between SBI and its associate banks was the amalgamation of SBI and State Bank of Saurashtra in 2018.

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Finance minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. Rationalisation of overseas operation in banking sector is in full swing. The banking sector needs reforms and the government is taking care of banks' capital needs.

The decision to merge the three banks came at a meeting held under the "alternative mechanism" framework that was drawn up previous year to consider consolidation in banking.

Other mid-sized banks were trading higher on the expectations of more mergers and acquisition announcement in future. Bank of Baroda has a considerable national footprint, while both Dena and Vijaya have a strong presence in their respective regions of Maharashtra and Karnataka, especially in the small-and-medium enterprises (SME) segment.

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Rajiv Kumar, Department of Financial Services Secretary at the Ministry of Finance, Government of India, said that the decision was arrived to create India's 3rd largest globally competitive bank.

The government will continue to provide capital support to the merged bank, Kumar added. He said the real picture of the NPA issue was known only in 2015. He alleged that banks undertook above-normal lending during 2008-2014 as "if there was no tomorrow" resulting in huge non-performing assets to the tune of Rs 8.5 lakh crore. Vijaya Bank lost Rs 442.61 crore to Rs 7,355.39 crore in market capitalisation. "With BOB forming the biggest chunk of the business (two-third), this scheme appears to create some headwinds for the bank", said Dhananjay Sinha, Head of Research, Economist and Strategist, Emkay Global Financial Services. We were waiting, before moving forward, for the situation to start turning. The government had made a mention of consolidation of banks earlier, Jaitley said. The gross NPA ratio now stands at 22 percent which is the highest in the banking industry.

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