Government’s Proposal to Merge Dena Bank, Vijaya Bank and Bank of Baroda

Background

  • The merger of these three state-owned banks is a part of the government’s agenda of consolidation of public sector banks. The consolidation was proposed by the Alternative Mechanism.
  • The Union Cabinet in August 2017 approved amalgamation of Public Sector Banks through Alternative Mechanism (AM) with an aim to facilitate consolidation among the Nationalised Banks to create strong and competitive banks.

Issues in Indian banking sector

  • Most of the rural branches are running at a loss because of high overheads and prevalence of the barter system in most parts of rural India.
  • Due to a high proportion of non-performing assets or outstanding due to banks from borrowers they are incurring huge losses.
  • Most of the PSBs are also unable to maintain capital adequacy ratio.
  • Poor and unsatisfactory loan recovery rates from the agricultural and small sectors.
  • Commercial banks have been facing stiff challenges from non-banking financial intermediaries such as mutual funds, housing finance corporations, etc. in deposit mobilisation.
  • The growth of foreign banks and the smaller private banks have resulted in diversion of deposits from the nationalised banks to them.
  • Nationalised banking system in India is failed to sustain the desired credit pattern and fill in credit gaps in different sectors.
  • The failure of the bank staff to appreciate the new work philosophy and new social objectives since 1991.
  • The nationalised commercial banks faced a unwarranted bureaucratisation of its working environment and culture.
  • The smooth working of nationalised banks has also been hampered by growing political pressures from the Centre and the States which many a time resulted in creation of NPAs.

Location: Thiruvananthapuram, Kerala, India

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