Bank of Baroda
The Bank of Baroda headquarters is pictured in Mumbai, India, April 27, 2016. The merger of Vijaya Bank and Dena Bank with BoB creates India's second largest bank in terms of network and customer base.Reuters

The merger of public sector lenders Vijaya Bank and Dena Bank with Bank of Baroda (BoB), that came into effect on Monday, has created the country's second-largest bank in terms of branch network and customer base. The top financial institution is public sector, State Bank of India (SBI), and Vadodara-headquartered BoB are followed by ICICI Bank. The amalgamation has been the result of the policy of creating bigger lending institutions pursued by Prime Minister Narendra Modi-led Bharatiya Janata Party (BJP) government.

On the National Stock Exchange (NSE), the BoB share gained 4.25 per cent or 5.45 to touch 134 after closing last week at 128.65. It made an intra-day high of 137.30 and a low of 130.25. BoB was the best performing banking stock on NSE on a day when Nifty Bank rose 0.6 per cent or 60.20 points to touch 30,487 points.

The amalgamated bank will have net non-performing assets (NPA) of 5.71 per cent taking the new entity clearly out of the prompt corrective action framework of the Reserve Bank of India (RBI). It will have the capital to risky asset ratio (CRAR) of 12.25.

BoB chief PS Jayakumar said in a statement that he was "extremely pleased that Bank of Baroda, Vijaya Bank, and Dena Bank are coming together creating the second largest bank in terms of network and customer base." He said: "We would work for the success of the amalgamation by effective execution of all the activities to build a stronger organization and collectively deliver more to the stakeholders than that of the sum of individual entities."

The RBI said in a statement on Saturday that all outlets of Bengaluru-based Vijaya Bank and Mumbai-based Dena Bank will begin functioning as outlets of BoB from Monday. BoB said the consolidated bank has over 9,500 branches, 13,400 ATMs, and 85,000 employees to serve its 12 crore customers.

The combined bank's business mix of Rs 15 lakh crore on the balance sheet, with deposits and advances at Rs 8.75 lakh crore and Rs 6.25 lakh crore, respectively, is considered healthy. "The diverse bouquet of products from the three banks and substantial investments made in technology will help in benefiting a wider customer base," Jayakumar said. BoB hopes to strengthen its presence in South India through the complementary branch presence of the merged entities.

Reserve Bank of India
Reserve Bank of India office in Mumbai. The merger of Dena Bank along with Vijaya Bank in Bank of Baroda removes the credit restrictions on account of RBI's prompt corrective action.Reuters

The amalgamated entity has 22 per cent market share in Gujarat and 8-10 per cent in Maharashtra, Karnataka, Rajasthan, and Uttar Pradesh, the bank said.

Dena Bank was under the RBI's prompt corrective action (PCA) framework, but its customers now benefit from renewed access to credit facilities after this merger, experts say.

Earlier, clarifying the merger policy under which the government created the world's 55th largest banking institution in terms of assets ($535 billion) and 61st in terms of market capitalization ($40.56 billion) by merging the associate banks with the State Bank of India (SBI), Finance Minister Arun Jaitley had said the government wanted Indian banks to be big enough to be able to compete with international banks.

In April 2017, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bhartiya Mahila had merged into the SBI creating an institution with about 2.94 lakh employees and 24,000 branches.