Vijaya Bank, Dena Bank, BoB to merge: What does it mean for customers?

New Delhi, Sep 18: With a view to clean up bad loans mess in the country's banking system, the Centre on Monday decided to merge three state-owned banks Vijaya Bank, Dena Bank and Bank of Baroda, giving birth to India's third-largest lender.

Finance Minister Arun Jaitley in a press conference said that the amalgamation will make the lenders stronger and sustainable as well as increase their lending ability.

All three banks combined would have a total loan book of Rs 6.40 lakh crore and total deposits of Rs 8.41 lakh crore, making it the third-largest bank in India. Total branches will increase to 9,489. But many of these branches could be overlapping, which means they may have to cut branches that are near to each other.

A government statement said the merger will lead to synergies of a shared network, low cost deposits and subsidiaries. The merged bank will have a current and saving account ratio of 34.06% and capital adequacy of 12.25%.

"No employee will face any service conditions which are adverse in nature. The best of the service conditions will apply to all of them," the govt further said.

The government has assured that the brand equity of all three banks will be preserved and capital support to the new entity will be provided. The merger's rationale is increase in customer base, market reach, operational efficiency, and wider bouquet of products and services to cutomer.

Customers of Dena Bank and Vijaya Bank will get to be a part of a larger and a wider banking network. But the connect that customers have with a smaller bank is much stronger than that of a bigger bank.

Furthermore, a bank merger means that one's bank accounts and their features may not remain as they were before the merger. Also, banks generally do not allow grandfathered accounts to be continued post the merger.

When banks merge, so do their customer deposits. If one happens to have a large amount of money in the two banks that are merging together, they are likely to find the entire money in the same bank, which defeats the purpose of splitting the sum in the first place.

Bank mergers can also lead to some customers switching to other banks. According to the study, 46 percent of respondents whose banks went through a merger within the previous 12 months reported they would definitely switch banks.