Big Merger, Small Gains

Finance minister Arun Jaitley believes the merger of three public sector banksBank of Baroda, Vijaya Bank and Dena Bank will create a strong entity and boost the weakest among them (Dena Bank), but not everyone is convinced.

- M.G. Arun

According to him, the government did not favour a merger of weak banks, and so came up with the idea of merging two strong banks with a weak one to create India’s third largest bank with a total business of Rs 14.82 lakh crore.

Dena Bank is one of the 11 public sector banks put under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI). Banks are put under PCA when they breach key regulatory requirements relating to capital adequacy ratio (a measure of a bank’s available capital expressed as a percentage of its credit exposures), return on assets and non-performing assets (NPAs). Banks under PCA are restricted from issuing fresh loans, expanding branches or recruiting more staff. In April last year, five of the State Bank of India’s subsidiaries were merged into the parent bank.