New Delhi: The government on Wednesday approved the merger of Dena Bank and Vijaya Bank with Bank of Bank of Baroda (BoB) to make it a globally competitive lender.

According to Union Minister Ravi Shankar Prasad, the merger will make BoB the third largest bank in the country and a “globally competitive entity”.

The minister said there will be no retrenchment of employees as the employees of Dena and Vijaya banks will be transferred to BoB. The merger has been designed to make BoB as merged entity, a globally competitive lender, Prasad added.

The merger, which will be effective from April 1, will mark the first-ever three-way merger in the country’s banking sector.

According to a government statement, as per the scheme of the amalgamation, Bank of Baroda will be the transferee bank while the other two public sector banks will act as transferors.

The move follows top lender State Bank of India last year merging five of its subsidiary banks with itself and taking over Bharatiya Mahila Bank, catapulting it to among the top 50 global lenders.

Earlier in September, the ‘Alternative Mechanism’ (AM) headed by Finance Minister Arun Jaitley decided to merge the three banks with a view to creating a global-sized lender which will be stronger and sustainable.

The merged entity will have a combined business of Rs 14.82 lakh crore, making it the third largest bank after SBI and ICICI Bank.

It will have better financial strength. The net NPA ratio will be at 5.71 per cent, significantly better than the public sector bank (PSB) average of 12.13 per cent.

Besides, Provision Coverage Ratio (PCR) would be better at 67.5 per cent against the average of 63.7 per cent and cost to income ratio would come down to 48.94 per cent as compared to average 53.92 per cent.

Capital Adequacy Ratio (CAR) at 12.25 per cent will be significantly above the regulatory norm of 10.87 per cent, and the stronger amalgamated bank will be better positioned to tap the capital markets.