Introduction





Bank of Baroda, which is a Multinational Indian public
sector banking and financial service provider had taken a big step to get
merged with its two competitors in the industry, Vijaya Bank and Dena Bank. The
two banks Vijaya Bank and Dena Bank were merged with BANK OF BARODA and they
will continue their operation with effect from  April 1 2019.





Before moving on to the mainstream, a question
arises that why this merger process was conducted by the government. It had
been noticed that Dena Bank and Vijaya Bank both are public sectors
undertakings which were running under loss for a long period. On the basis of
the last 2 years, Dena Bank had a loss of Rs. 863.62 cr in 2017 and Rs.
1923.15cr on 2018. The minimum profit of Vijaya bank was Rs. 14190.45 cr in
2017 and Rs. 14030.05cr in 2018. So the government decided to merge these three
public sector banks to generate profit as a result of synergy from the merger.










As a consequence of the merger, after beating the
private sector lender ICICI Bank, Bank of Baroda has become India's
third-largest bank. The banking operations and the account, which are held by
these banks had been transferred to Bank of Baroda. The customer of  Dena
Bank and Vijaya Bank had experienced a huge difference as a result of this
merger. The merged entity was the third largest leader in India after State
Bank of India (SBI) and ICICI  Bank by
holding the business of Rs. 15 trillion. This was also India’s
first-ever-three-way consolidation banks of  India with merged entity
emerging as the countries second largest public sector bank.





Since the banking operations were going to hand over
to BOB the customers of Vijaya  Bank and Dena Bank may get new account
number and ids along with debit cards, credit cards, passbooks and chequebooks.
This concludes that the customer will have to get have to update their banking
details with entities like Income Tax Department, Mutual funds and Insurance
companies. Interest rate and the existing loan will remain unchanged.





Reason for Reconstruction





1. As per the planning, the merged entity will help
the BOB to reach in the western, northern - eastern and southern regions of the
country to achieve the economies of scale and remove overlapping.  It had
already opened nearly 9500 branches and some of them may shut down.





2. On the newly
merged bank, the company provides advances and deposit share of 6.9 % and 7.4%
respectively according to a  Motilal Oswal report. The merged entity will
increase to about 20 % of total loans due to higher retail book value of Vijaya
Bank.





3. It will have a deposit base of rupees 8.41 lakh
crore, and the combined entity will have a CASA mix of 33.6 %, with a Cash
Deposit ratio of 70.7 %, according to the report.





Involvement of Government





This merger of these three lenders had been followed
to the merger of State Bank Of India with the associated bank in 2017.
According to Rajiv Kumar, the secretary of the Department of Financial Service
had yielded good results from the previous experience. This government took the
next step by merging three public sector banks. The amalgamation of Bank of
Baroda, Vijaya Bank and Dena Bank will create a lender which will be the third
largest bank of India, said by Kumar.


The  Finance Minister Arun Jaitley also added
that the merger of these banks had been conducted in this way that the combined the bank does not end up being weaker as an individual entity.  It will not
create any trouble for the existing customers and employees after this proposed
merger said by Jaitley.





Important facts of reconstruction


Among three the Bank Of Baroda is the biggest with
Rs.10.29 lakh crore on the entire business where Vijaya Bank stands at Rs 2.79
and Dena Bank at Rs 1.72 lakh crore. The combined entity will have a strong
presence in the entire nation at 34 % low-cost deposits, a capital buffer of
nearly 12% of a business book of Rs 14.82 lakh crore.


In absolute term, the gross of the non-performing
assets will be roughly Rs 80,000 cr.and this also suggested that the gross NPA
ratio will be worked out to be 13 per cent.


As per the data share by NPCI the out of  144
banks that are going to live on the UNIFIED PAYMENT  INTERFACE (UPI),
cooperative banks from a substantial chunk. However, this is the first
three-way-merger public sector banking space has taken a place. Before this,
the State Bank of India had merged five of its subsidiary bank itself and took
over  Bharatiya Mahila Bank which secures the place among top 50 global
lenders.





Conclusion





The new Bank of Baroda is expected to create a
global competition with the market by taking advantage of the economic scale,
synergies the network, low-cost deposits and subsidiaries. It is also expected
that the bank will improve customer base, operation efficiency, market reach
and the capacity to offer wider product and services to the customers. The
merging of the banking sector is considered to be a step towards development in
the banking sector. Such merges give opportunities like raising fresh capital,
changing the hiring policy to the government. It also created huge vacancies,
career, locational access. There are other several advantages like:





i) The larger banks have wider capital and can offer
the loan of a larger amount.


ii) Public sector banks will improve their
efficiency and service delivery.


iii) Customer of the smaller banks can access to
wider financial instruments like mutual funds and insurance that are available
in big banks.





There are some other disadvantages also


i) First of all small banks have lost their local
characteristics.


ii) There will be a greater financial risk for the
broader economy because of a few large inter-linked banks.


iii) The human resource will be difficult to manage.


iv) Career growth(promotions)of senior management
and another worker could attract it may also create distress with bank
employees.