Merger of three bank bank of baroda, dena bank and vijya bank
1. MERGERS IN INDIAN BANKING SECTOR :
DENA BANK & VIJAYA BANK
IN
BANK OF BARODA
Presented By :
Santosh Kumar
2. HISTORY OF BANKING SECTOR
According to Indian banking history, The British East India Company established
“The Hindustan Bank” in Calcutta and Bombay in 1870, was the earliest Indian
Bank banking in India on modern lines started with the establishment of three
presidency banks under Presidency Bank’s act 1876 i.e. Bank of Calcutta, Bank of
Bombay and Bank of Madras.
3. RESERVE BANK OF INDIA
Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was
constituted as an apex bank without major government ownership. Banking
Regulations Act was passed in 1949. This regulation brought Reserve Bank of India
under government control. Under the act, RBI got wide ranging powers for
supervision &control of banks. The Act also vested licensing powers & the authority
to conduct inspections in RBI.
4. MERGER MEAN ?
• The term merger refers to a combination of two or more corporate (in this case
banks) into a single entity. Mergers are governed by companies Act, the court & law.
• In merger, one bank gets merged with the other losing its own identity by way of
share transactions/asset/liability transfers.
• Merger is covered regulated/covered by the Companies Act, 1856.
• Merger refers to finding an acceptable partner, determining upon how to pay each
other and ultimately creating a new company, which is a combination of both the
companies.
5. WHY ?
• To increase Market Share.
• Economies of scale
• Profit for Research and development.
• Benefits on account of tax shields like carried forward losses or unclaimed
depreciation.
• Reduction of competition and financial risk.
7. CONT..
• Horizontal Mergers
Horizontal mergers are those mergers where the companies manufacturing similar
kinds of commodities or running similar type of businesses merge with each other.
Example : Bank of Madura with ICICI Bank
• Vertical Mergers
A merger between two companies producing different goods or services.
Example : Pixar-Disney Merger
8. CONT..
• Conglomerate Mergers
A merger between firms that are involved in totally unrelated business activities.
Two types of conglomerate mergers:
Pure conglomerate mergers involve firms with nothing in common.
Mixed conglomerate mergers involve firms that are looking for product extensions
or market extensions.
Example : Walt Disney Company and the American Broadcasting Company.
9. CONT..
• Concentric Mergers
Based on specific management functions where as the conglomerate mergers are
based on general management functions.
Example: Citigroup (principally a bank) buying Salomon Smith Barney (an
investment banker/stock brokerage operation.
10. SOME OF THE PAST MERGED
BANKS
• Grind lay Bank merged Standard charted Bank - 2000
• Times Bank with HDFC Bank - 2000
• Bank of Madura with ICICI Bank - 2001
• Nedungadi Bank Ltd. With Punjab National Bank - 2003
• Global Trust Bank merged with Oriental Bank of Commerce – 2004
• Parur central Bank merged with Bank of India – 1989-90
• United industrial Bank merged with Allahabad Bank – 1989-90
• Lakshmi Commercial Bank merged with Canara Bank – 1984-85
11. REASONS OF MERGER
ReasonsProduct
improvement
Future goals
Mutual benefits
Maximizing
Profits
Expansion of
Business
Economy of scale
Increase Market
share
Cost maximization
Diversification of risk
Goodwill
12. DENA BANK
• Dena Bank was founded on 26 May 1938 by the family of Devkaran Nanjee under
the name Devkaran Nanjee Banking Company.
• It adopted its new name, Dena (Devkaran Nanjee) Bank , when it incorporated as a
public company in December 1939.
• In July 1969 the Government of India nationalized Dena Bank.
• Dena Bank is headquartered in Mumbai and it has 1874 branches.
• MD & CEO is Karnam sekar.
• Products are consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, private
equity, savings, Securities, asset management, wealth management.
13. CONT..
• Total number of employee - 13,906(2016)
• Revenue
INR 10,645.73 crore (US$1.5 billion)
• Operating income
INR 925.30 crore (US$130 million) (2016)
• Net income
INR 935.32 crore (US$−130 million) (2016)
• Total assets
INR 133,441.63 crore (US$19 billion) (2016)
14. VIJAYA BANK
• Vijaya Bank is a public sector bank with its corporate office in Bangalore, Karnataka,
India. It is one of the nationalized banks in India.
• Vijaya Bank was established by a group of farmers led by A. B. Shetty on 23
October 1931 and MD & CEO R. A. Sankara Narayanan.
• It was established on the auspicious Vijayadashami Day, it was named 'Vijaya Bank‘.
• The bank has a network of 2031 branches (as of March 2017) throughout the country
and over 4000 customer touch points including 2001 ATMs.
• In the beginning the bank had an authorized capital of ₹5 lakh and an issued capital
of ₹2 lakh. The paid up capital was ₹8,670.
• The bank has provided sanitation facilities to 56 govt. schools mostly in rural areas.
The bank has established 32 rural health centres.
15. CONT..
• Products are Consumer banking, corporate banking, finance and
insurance, investment banking, mortgage loans, private banking, wealth
management.
• Revenue
INR 12,379 crore(US$1.7 billion)(2017)
• Net income
INR 750.48 crore(US$100 million) (2017)
• Total assets
INR 154,881.57 crore(US$22 billion) (2017)
• Number of employees
15,679 (2017)
16. BANK OF BARODA
• Bank of Baroda is an Indian state-owned International banking and financial
services company headquartered in Vadodara (earlier known as Baroda) in Gujarat,
India. It has founded in 20 July 1908 and corporate office in Mumbai.
• CEO is P. S. Jayakumar .
• It is ranked 1145 on Forbes Global 2000 list based on 2017 data.
• BoB has total assets in excess of ₹ 3.58 trillion (making it India’s 2nd biggest bank
by assets), a network of 5538 branches in India and abroad, and 10441 ATMs as of
July, 2017.
• The envisaged amalgamation will be the first-ever three-way consolidation of banks
in the country, with a combined business of Rs 14.82 lakh crore, making it the third
largest bank after State Bank of India (SBI) and ICICI Bank.
18. • On Sept. 17,2018 the Narendra Modi government announced plans to merge three
public sector banks Mumbai-based Dena Bank, Bengaluru’s Vijaya Bank, and Bank
of Baroda (BoB) that has its head office in Vadodara, Gujarat. The merged entity,
with total assets of over Rs14 lakh crore ($190 billion), will be India’s third-largest
lender behind the State Bank of India and HDFC Bank.
• With this, the government has thrown a lifeline to Dena Bank, whose gross non-
performing assets (NPA) ratio in the quarter ended June 30, 2018, stood at 22%,
among the industry’s highest. It is already under the Reserve Bank of India’s (RBI)
supervision; in May it was barred from lending any further or recruiting new
employees.
• Vijaya Bank and BoB are in better shape. In the April-June quarter of financial year
2019, Vijaya Bank posted a net profit of Rs144 crore, while BoB’s figure stood at
Rs528 crore. In this period, Dena Bank posted a net loss of Rs721 crore.
REASON BEHIND ?
19. • The amalgamated bank is to become the third biggest bank in India with a total
business of more than INR 1,482,000,000,000 (US$21 billion). The boards of the
three banks are to meet to consider the proposal.
• The agenda behind the merger of the banks is to lower Non-performin assets.The
Gross NPA OF the Bank of Baroda, Vijaya Bank and Dena Bank is 12.4%, 6.9% and
22% respectively.The Dena Bank is currently operating under the Prompt Corrective
Action (PCA) framework due to non-performing loans.
• The merger proposal will first have to be approved by the board of directors of the
three banks. Then the government will prepare a plan to be vetted by the union
cabinet and both houses of parliament. The process can take up to a year.
CONT..
20. PURPOSE
The government proposes and hopes to achieve through this merger:
• The amalgamated bank would be the third largest bank in India.
• It will be a strong competitive bank with economies of scale.
• It will create synergies for network, low-cost deposits and subsidiaries.
The merger will lead to a substantial rise in:
1. customer base
2. market reach
3. operational efficiency
4. Wider bouquet of products services for customers
21. Employees interests will be protected.
• Brand equity to be preserved.
• All three banks are on Finacle CBS Platform.
• Capital support will be ensured.
CONT..
23. BENEFIT FOR ECONOMY
• Economies of Scale
In economics, the term economies of scale refers to the financial advantage that a business
gains when it expands, including the growth that occurs in a merger. Banks that merge pool
their assets and streamline their processes. This means that whereas two separate banks
would need to invest in two different projects to deliver similar results, the single bank that
exists after a merger only needs to invest in the program once and apply its results to the
entire company.
• Debt Consolidation
Banks provide loans to many of their customers, but to do so they must often incur high
levels of debt themselves. Banks borrow money to expand, meet payroll obligations, invest
in marketing and make loans to individual and business customers. When banks merge they
can consolidate their debt, which reduces the amount of interest they pay compared to the
total debt two separate banks carry on their own.
24. CONT...
• More Branches
One of the primary reasons banks merge is to acquire new branches and expand
geographically. Merging means that a bank takes on new locations, including local
branches in states, cities and neighborhoods it might not currently serve. This is far more
cost-effective than opening the same number of new branches. It also provides a benefit for
customers who will find more places to make deposits, get cash and perform other banking
tasks conveniently.
• Regulation and Oversight
Government tracks bank mergers to ensure that they don't violate regulatory policies or
violate antitrust laws. However, when banks merge in accordance with the law, they reduce
the number of individual institutions the government must track and oversee. Fewer banks
mean fewer opportunities for bank failure. This is especially beneficial when two small
local or regional banks merge, strengthening their collective market position and giving the
new bank a better chance to compete with major commercial banks in the area.
25. ADVANTAGES..
• It makes RBI to have better control on the system and implementation of policies
will be easy.
• Penetration to the market will be easy.
• RBI will watch Banks on it’s performance, especially in terms of NPA (Non-
Performing Assets)/otherwise loans which are not recovered. If NPA percentage of
bank is above prescribed Norms, it will be asked to merge with a bigger bank to ease
the situation as combined capital of Banks will be higher and there by reducing the
NPA percentage.
26. DISADVANTAGES..
• Different Banks have different culture, systems, processes, procedures and merger
will lead to clash of organizational cultures. Employees of larger bank does not give
equal treatment to employees of smaller bank in the new and merged bank.
• It will take some time for customers to know that their Banks are merged. Even
though it’s mandatory for Banks to inform all their customer about the merger (via
SMS, Post, E-Mail, Advertisements), some customer may miss the communication
and get panic to see their Branch board is replaced with a new one.
• If there too many mergers of Banks, market will be controlled by these major Banks
and there by customers will have less choice to Bank.
27. CONCLUSIONS
we conclude that Government is aiming to reduce the number of state-owned lenders
and improving their financial health. In this background proposed merger will
benefit to not only to bank but also to economy as whole. Similarly the Bank Board
Bureau has been tasked with overseeing a restructuring among other public sector
banks to speed of the long delayed process.
