Paving the way for the first ever three-way merger of public sector lenders, the Cabinet on January 2 approved the amalgamation of Dena Bank and Vijaya Bank with Bank of Baroda, which will create India’s third largest lender.

Union Law Minister Ravi Shankar Prasad said there won’t be any retrenchment of employees and their services conditions won’t be affected after the merger.

The boards of the three banks have also cleared the share-swap ratio for the proposed amalgamation.

As per the Scheme of Amalgamation announced by Bank of Baroda, shareholders of Vijaya Bank will get 402 equity shares of BoB for every 1,000 shares held in the bank.

In case of Dena Bank, shareholders will get 110 shares of BoB for every 1,000 shares owned in the bank.

The scheme will into force on April 1.

Prasad said the amalgamation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies.

The amalgamation will be the first ever three-way consolidation of banks in India, with a combined business of Rs 14.82 lakh crore, making it the third largest bank after SBI and ICICI Bank. The merger will also create the second largest public sector bank.

Post merger, the number of PSU banks will come down to 19.

The Scheme of Amalgamation will .be laid before Parliament for 30 days for the perusal of the members. Sources said it will be laid before Parliament before the end of the Winter Session, which is to end on January 8.

Last September, the Alternative Mechanism headed by Finance Minister Arun Jaitley gave in-principle approval for the merger of the three banks with a view to creating a global-sized lender.

The government has already committed capital support for the merged entity, which is projected to have a net NPA ratio of 5.71 per cent. This would be much lower than the average ratio of 12.13 per cent for public sector banks.

Provision Coverage Ratio would be better at 67.5 per cent against the average of 63.7 per cent. For the merged entity, the cost-to-income ratio would be 48.94 per cent, whereas the average for public sector lenders is 53.92 per cent.

Capital Adequacy Ratio at 12.25 per cent would be significantly above the regulatory norm of 10.87 per cent.