A day after the government proposed to merge three public sector banks, global credit rating agency, Moody’s Investors Service has said that merger of 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.
The rating agency also noted that the merged entity will become third largest bank in the system, with a loan market share of about 6.8 per cent. It further expressed need of capital support from the government to the merged entity, adding that if it is not provided then such a merger would not improve their capitalisation profile.
Besides, Moody’s highlighted that Bank of Baroda and Vijaya Bank have relatively better credit metrics than Dena Bank in terms of asset quality, capitalisation and profitability. Meanwhile, the government 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.