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Modi government on Monday proposed merger of Dena bank, Vijaya Bank and Bank of Baroda into one entity.

Making the announcement, Rajiv Kumar, Financial Services Secretary said, "We have made a decision to merge Dena Bank, Vijaya Bank and Bank of Baroda".

"Alternative mechanism under Finance Minister, Arun Jaitley suggests bankofbaroda, VijayaBankIndia & dena_bank to consider amalgamation; to create India's 3rd largest globally competitive bank", he tweeted on Monday evening.

This is the third major restructuring in the public sector banking space undertaken by this government. "Many banks were in a fragile condition".

The government of India announced today the merger of three public sector banks namely Dena Bank, Bank of Baroda and Vijaya Bank.

On the reason of choosing these three banks for merger, Jaitley said that one of the bank (Dena Bank) was on RBI's Prompt Corrective Action (PCA) list and other two banks have the strength to subsume a weaker bank.

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Last yera, top lender State Bank of India was merged with five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.

Provision coverage ratio of the combined entity will be at 67.5 per cent, higher than the PSB average of 63.7 per cent, and it will have a total of 9,489 branches. The merged entity or amalgamated bank would be India's third largest. Explaining the rationale for the decision to merge the three banks, Jaitley said bank lending was becoming weak and was hurting corporate sector investments. While it may make sense to amalgamate Vijaya Bank and Bank of Baroda as both banks have relatively strong financials, including Dena Bank in the consolidation exercise is fraught with pitfalls, he added.

He added that the government would now await the response of the banks to the proposal.

"No employee will face any service conditions which are adverse in nature. At a time when we need more branches and financial inclusion, the amalgamation will lead to closure of branches, which is not good for the development of the country and is anti-people", said CH Venkatachalam, General Secretary, All India Bank Employees' Association. "The best of the service conditions will apply to all of them", Jaitley said.

In a separate statement. the government said: "Leveraging of networks, low-priced deposits and subsidiaries of the three banks has the potential of yielding significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers". "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said. This was accompanied by another step which was really to sweep the NPAs below the carpet so that the real picture does not come out. The bank had reported a net profit of Rs 203.39 crore in the same quarter of 2017-18.