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Being faced by the challenges posed by the dynamism in the
economy, variation in the governmental policies and ever-growing
competition leads to the changes in the circumstances for the
business entities in the market which may opt for corporate
restructuring. In order to accelerate the growth and aim to
maximize the profitability, two or more enterprises may join hands
and work together not only having joint liabilities,
responsibilities and assets but also joint business objectives.
Merger of the corporates may be attributable to many reasons such
as joint acquisition of technologies, access to sectors/markets,
etc. In the process, generally, the merging entities would cease to
be in existence and a unified merged entity comes into
existence.
Government proposes merger
The Government on September 17, 2018, proposed the merger of
state-owned Bank of Baroda, Vijaya Bank and Dena Bank to create the
country's third largest lender as part of efforts to revive
credit and economic growth.1 The merged entity,
comprising two relatively stronger banks (Bank of Baroda and Vijaya
Bank) and a weak one (Dena Bank), will be the third-largest lender
in India after State Bank of India and HDFC Bank Ltd, with a total
business of more than ₹14.82 trillion.
Objective
This comes in furtherance of the Government's efforts for
reforming the banking sector which is already facing the threat
posed by the non-performing assets (hereinafter referred to as
"NPA"). NPAs are the assets or account of a borrower,
which has been classified by a bank or financial institution as
sub-standard doubtful or loss asset. The Government has proposed
the aforesaid merger with a view to save all the existing banking
entities and to wipe out the raising mountain of bad loans in
India, the banking sector has suffered substantial losses.
While Dena Bank has already been placed under the prompt
corrective action framework by the Reserve Bank of India imposing
restrictions on its lending, the Vijaya Bank on the other hand has
reported profits in the year 2017-18.
Expected impact
The proposed consolidation which is yet to receive the response
from the merging banks and approval from the Parliament, is
expected to create a strong global competitive market with
economies of scale and enable realization of wide-ranging
synergies. The Government is of the opinion that this merger will
lead to the formation of a mega bank which will be sustainable,
whose lending authority will be far higher. It has also been
specified that the merger would lead to increase in the banking
operations, customer services and accord protection to the
employees, preservation of brand equity. Also, capital support may
be provided to the new entity. On the similar footings of a
previously authorized unification of all associate banks of State
Bank of India (hereinafter referred to as "SBI) and Bhartiya
Mahila Bank into a single entity – SBI, the Government is in
the process of amalgamating Dena Bank, Vijaya Bank and Bank of
Baroda. Speculations rise regarding the fulfilment of the purpose
of the merger which is to reduce the implications of bad loans by
strengthening the banking system and maintaining their business
without altering the existing staff.
For further information please contact at S.S Rana &
Co. email: info@ssrana.in or
call at (+91- 11 4012 3000). Our website can be accessed at
www.ssrana.in
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The RBI, on September 1, 2018, released a user manual to clearly set out the procedure for filing a single master form, which it introduced on June 7, 2018, to integrate the existing reporting norms for foreign investment in India.
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