BoB-Dena Bank-Vijaya Bank merger takes effect from 1st April : Here's what will change for customers of these banks

Two major state-run banks will stop operations from April 1. These two banks are Dena Bank and Vijaya Bank, and they will be merged with Bank of Baroda. Bank of Baroda will acquire Vijaya Bank and Dena Bank to create India’s second largest public sector bank behind State Bank of India (SBI) effective Monday. This is the first threeway merger of banks in India. The combined bank will have a geographical reach of more than 9,500 branches, more than 13,400 ATMs with 85,000 employees serving 120 million customers. 

The combined entity will have deposits and advances of Rs 8.75 lakh crore, and Rs 6.25 lakh crore, respectively. “The complementary branch presence will add to the network in western and southern states – Maharashtra, Gujarat, Kerala, Tamil Nadu, Karnataka and Andhra Pradesh. The bank will have a 22 per cent market share in Gujarat and an 8-10 per cent market share in Maharashtra, Karnataka, Rajasthan and Uttar Pradesh,” Bank of Baroda said. 

Dena Bank, which is under RBI watch under the so-called prompt corrective action framework, will have renewed access to credit facilities immediately. 

“Both banks will have access to BoB’s international presence at 101 offices. Unique programmes of Vijaya Bank like SRTO funding, plantation financing will be available to customers of the other two banks,” BoB said. 

Banking operations and accounts held by these two banks will be transferred to Bank of Baroda post merger. This would lead to some changes for the customers of Dena Bank and Vijaya Bank.

Since the banking operations of Dena Bank and Vijaya Bank will be handed over to Bank of Baroda (BoB), the customers may get new passbooks, cheque books, debit and credit cards, and even new account numbers and customer IDs. This means that the customers will have to get their banking details updated with entities like the Income Tax Department, mutual funds, insurance companies, etc.

Some aspects, like the interest rate on fixed deposits or recurring deposits, and existing loans, are not likely to change. Here's a look at how the merger of Dena Bank and Vijaya Bank with Bank of Baroda might affect their customers:

What could change

1. New bank account numbers and customer IDs could be assigned to the customers.
2. Customers will have to update their banking details with entities like the Income Tax Department, mutual funds, insurance companies, National Pension Scheme, etc, to incorporate the new account numbers and IFSC codes.
3. Customers might have to fill new instruction forms for SIP and loan EMIs.
4. New cheque books, passbooks, credit cards and debit cards might be issued.
5. Some branches might be closed after consolidation. Customers of such branches are likely to be transferred to a different branch of Bank of Baroda.

What will remain unchanged

1. The interest rates for personal loans, home loans, auto loan, education loan, etc are not likely to change.
2. The interest paid to customers on fixed deposits or recurring deposits is expected to remain unchanged.

The Supreme Court of India has dismissed the petitions by several bank associations to stay the merger of Bank of Baroda, Dena Bank and Vijaya Bank, clearing the way for the amalgamation. Ahead of the merger, the government has decided to infuse Rs 5,042 crore into the Bank of Baroda by way of preferential allotment of equity shares of the bank during FY2018-19, as government's investment.

According to the Scheme of Amalgamation, shareholders of Vijaya Bank will get 402 equity shares of BoB for every 1,000 shares held. In the case of Dena Bank, its shareholders will get 110 shares for every 1,000 shares of BoB.

After the entity formed by the merger of BoB, Dena Bank and Vijaya Bank will be second the third biggest in the Indian banking sector, by virtue of assets and businesses.

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Two Regional Rural banks going to amalgamate

Indian Bank, on Friday, said the Department of Financial Services, Ministry of Finance, has issued a notification for amalgamation of Pallavan Grama Bank (sponsored by Indian Bank) and Pandyan Grama Bank (sponsored by Indian Overseas Bank) in Tamil Nadu into a single Regional Rural Bank.

The new bank will be called Tamil Nadu Grama Bank, with its head office at Salem, under \the sponsorship of Indian Bank.

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Centre plans amalgamation of Regional Rural Banks(RRBs) at the State level

The government has decided to start the consolidation process of Regional Rural Banks (RRB) after a gap of six years and bring down the number of such entities to 38 from 56 now.In a communication to the chiefs of public sector banks, which are the sponsors of the RRBs, the finance ministry asked them to amalgamate the RRBs within a State. 

The ministry, in its letter in the first week of this month, also mentioned the list of RRBs which could be merged.The letter also asked the lenders to obtain a no-objection certificate from the board for the merger.“It is envisaged that the RRBs within a state could be amalgamated. Accordingly, GoI, in consultation with Nabard, has approved the road map for amalgamation of RRBs, which will bring down the number of RRBs to 38 from 56,” the letter said.

The ministry expects that the consolidation process would enable RRBs to minimise their overhead costs, optimise use of technology, enhance capital base and area of operation and their exposure.“Further, this will bring about better scale efficiency, higher productivity, robust financial health of RRBs, improved financial inclusion and greater credit flow to rural areas. It is expected that amalgamation will bring about better functional entities,” it said.

Third phase 

This is the third phase of consolidation among Regional Rural Banks(RRBs), but the first attempt by the present NDA government which came into power in 2014.The first phase of consolidation was in 2004-05 when Regional Rural Banks(RRBs) of same sponsor banks, within a state, were merged. As a result, the number of RRBs came down from 196 to 82. The second phase was in 2011-12, when RRBs with geographical contiguous areas of operation within a state were merged, across sponsor banks. As a result, the number of RRBs further declined to 56.

While Regional Rural Banks(RRBs) have taken deep roots in the last four decades of their existence and become an important entity for rural credit, their financial viability became a matter of concern since 1980, just five years after their existence.

As a result, the government decided to start merging Regional Rural Banks(RRBs) with commercial banks.

While consolidation among public sector banks remained at the drawing board, the government was successful in merging five associate banks of State Bank of India as well as Bharatiya Mahila Bank, with SBI in 2017-18.

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