Lok Sabha Question No. 3947 (UNSTARRED), answered on 2019-01-04
Subject: Merger of Banks
Ministry: FINANCE
Asked by: RAM CHARITRA

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO. 3947

## DEPARTMENT  OF FINANCIAL  SERVICES

## TO BE ANSWERED ON THE 4 TH  JANUARY  2019/ PAUSHA  14, 1940  (SAKA)

## Merger of Banks

## 3947. SHRI RAM  CHARITRA  NISHAD:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether   the  Government   has  sought   inputs   from   the Reserve   Bank of  India  (RBI)  on  certain regulatory   aspects  of  the  proposed   amalgamation of  State  run   Bank of  Baroda,   Vijaya   Bank and  Dena Bank and  if so, the details  thereof;  and
- (b) whether  Dena Bank is under  the RBI's prompt  corrective  action  framework  and is also barred  from lending  until  it fixes its finances  and if so, the details  thereof?

## ANSWER Minister of State in the Ministry  of Finance (SHRI SHIV PRATAP  SHUKLA)

(a)  and  (b):  No  inputs   have  been  sought   from   RBI  on  regulatory aspects  of  amalgamation of  Bank of Baroda,  Vijaya  Bank and  Dena Bank.

The Banking  Companies  (Acquisition  and Transfer  of Undertakings) Acts of 1970 and 1980 provide  that the Central  Government,  in consultation  with  the Reserve  Bank of India (RBI), may  make  a scheme, inter alia , for the amalgamation  of any  nationalised  bank  with  any  other  nationalised  bank  or any  other  banking institution. Various  committees,  including  Narasimhan  Committee  (1998) constituted  by  RBI, Leeladhar Committee  (2008) chaired  by  RBI Deputy  Governor,  and Nayak  Committee  (2014) constituted  by  RBI, have  recommended   consolidation   of  Public   Sector   Banks  (PSBs)  given   underlying benefits/synergies. Taking   note  of  this  and  potential   benefits   of  consolidation, Government, with   a  view   to  facilitate consolidation   among   public   sector  banks   to  create   strong   and  competitive   banks,   that   may   serve  as catalysts   for  growth   with   improved   risk   profile   of  the  bank,   approved   an  approval   framework for proposals  to amalgamate  PSBs through  an Alternative  Mechanism  (AM).

After  consulting  RBI, AM,  in its meeting  held on 17.9.2018,  approved  that  Bank of Baroda (BoB), Vijaya Bank and Dena Bank may  consider  amalgamation  of the three banks.  As per information  received  from banks in this regard,  after consideration  of the amalgamation, the Boards of BoB and Vijaya  Bank gave their   in-principle   approval   and  the  Board  of  Dena  Bank  recommended   for  amalgamation. After considering  banks'  and RBI's inputs,  AM,  in its meeting  held on 20.12.2018,  gave in-principle  approval  for the  amalgamation   of  BoB,  Vijaya   Bank and  Dena  Bank.   After   obtaining   RBI  inputs,   Government   has notified  the scheme of amalgamation  for amalgamating  Bank of  Baroda,  Vijaya  Bank and  Dena Bank.

Reserve  Bank of India (RBI) has issued a Prompt  Corrective  Action  (PCA)  framework  for sound financial health   of  banks   and  with   a  view   to  facilitate   banks   in  taking   corrective   measures   in  a  timely   manner, encouraging   banks   to  eschew   certain   riskier   activities,   improve   operational   efficiency   and  focus  on conserving   capital   to  strengthen   them.   It  envisages   prescription   of  certain   mandatory and  discretionary actions,  as part  of which,  subsequent  to placement  of Dena Bank  under  the PCA  framework  in May  2017, lending  restrictions  on assuming  fresh exposure  were  imposed  by  RBI in May  2018. It may  be noted  that Dena Bank has a number  of strengths  that  may  benefit  the amalgamated  bank.  These include, inter alia , a high Current  Account  and Savings Account  (CASA)  ratio  of 41.03% and improved  Provision  Coverage Ratio   of  65.27%  as  of  30.9.2018.   Further,   operating   profit   and  net interest   income   have  increased   in September  2018 over September  2017.