Merger of banks to improve efficiency: Moody’s

Moody’s Investors Service on Tuesday said the plan to merge Bank of Baroda, Vijaya Bank and Dena Bank will be credit positive as it would improve their efficiency and governance.

The government on Monday proposed the merger of the three state-owned banks to create the country's third largest lender as part of efforts to revive credit and economic growth.

“The government of India’s plan to merge three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank, will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks,” Moody’s Investors Service VP (Financial Institutions Group) Alka Anbarasu said.

The merged entity will have a market share of about 6.8 per cent by loans, according to data as of March 2018, making it the third largest bank in the system, Moody’s said.

“We expect the merged entity will require capital support from the government, otherwise such a merger would not improve their capitalisation profile,” Anbarasu said.

Moody’s said BoB and Vijaya Bank have relatively better credit metrics than Dena Bank in terms of asset quality, capitalisation and profitability.

The plan to merge the three banks was taken by a ministerial panel, led by Finance Minister Arun Jaitley Monday. The boards of the banks would meet separately to clear the merger. 

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