New Delhi:

Beating private sector lender ICICI Bank, state-run Bank of Baroda (BoB) will become India’s third largest bank after its merger with Dena Bank and Vijaya Bank comes into effect tomorrow. With a total business of about ₹15 trillion, the merged entity will be the third-largest lender in India, after State Bank of India and HDFC Bank. This is also India’s first-ever three-way consolidation of banks in India, with the amalgamated entity emerging as the country’s second largest public sector bank.

Here are 10 things to know about Bank of Baroda merger:

1. In terms of the number of branches, Bank of Baroda will rank second in India across all banks. The merged entity will have nearly 9,500 branches as Dena Bank and Vijaya Bank will help BoB increase its reach in the western, southern and north-eastern regions. However, to achieve economies of scale and remove overlapping, it is expected that some branches of either of the banks will be shut down.

2. The new merged Bank of Baroda has an advances and deposits market share of 6.9% and 7.4%, respectively, according to a Motilal Oswal report. The retail book of the merged entity will increase to about 20% of total loans due to a higher retail book of Vijaya Bank. The combined entity will have a CASA mix of 33.6%, with a CD ratio of 70.7%, according to the report.

3. After the merger, the number of public sector banks (PSBs) will reduce to 19 from 21. As the second largest PSB, Bank of Baroda will be smaller in size than SBI but bigger than all other state-owned entities. Debt-ridden Punjab National Bank (PNB) was so far the second largest PSB.

4. The merger will also bring down the number of banks kept under the Prompt Corrective Action (PCA) framework by the Reserve Bank of India (RBI) to four. Dena Bank is among the five PSU banks kept under PCA watch over burgeoning losses and NPAs.

5. Based on the third quarter results of Dena Bank and Vijaya Bank, key credit metrics of the merged entity, with the exception of profitability, will be broadly similar to that of Bank of Baroda, according to a Moody’s report. It also predicts that BoB’s profitability will be dragged down by the NPAs of the other two banks.

6. Brokerage firm Prabhudas Lilladher doesn’t see any major integration issues dragging the performance of the bank and has predicted that the merger is likely to be a smooth process. It has, however, cautioned that branch profitability analysis remains a focus area.

7. To strengthen the balance sheet of the merged entity and meet its credit and contingency needs, the government has decided to infuse ₹5,042 crore into Bank of Baroda by way of preferential allotment of equity shares.

8. According to the share swap ratio, shareholders will receive 402 equity shares of Bank of Baroda for every 1,000 equity shares held of Vijaya Bank. For every 1,000 shares of Dena Bank held, investors will receive 110 equity shares of Bank of Baroda. On the basis of this share swap ratio, the government’s shareholding in the merged entity will rise from 63.7% to 65.7%.

9. According to market reports, cultural integration of the three banks is likely to remain an overhang on the bank’s near-term performance. The back-end technology integration would, however, be relatively smooth as all the three banks operate on the Finacle CBS platform.

10. The new Bank of Baroda is expected to create a globally competitive Bank by taking the advantages of economies of scale, synergies for the network, low-cost deposits and subsidiaries. It is also expected to improve customer base, market reach, operational efficiency and the capability to offer a wider bouquet of products and services for customers.

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