Sources said the share swap ratio for the merger of Dena Bank and Vijaya Bank with the larger bank Bank of Baroda will be decided next month and the merged entity will kick off operations from April 1, 2019.

The merger, proposed by the government last September, will create India’s third largest bank with a total business of more than Rs 14.82 lakh crore.

The first big merger during the tenure of the current National Democratic Alliance government was the amalgamation of the five associate banks of the State Bank of India with itself.

The government had also moved to offload its majority stake in IDBI Bank to Life Insurance Corporation of India.

When the three banks are merged, the combined entity’s capital adequacy ratio will be at 12.25 per cent, with tier-1 capital at 9.32 per cent and net non-performing assets at 5.71 per cent. The entity will have nearly 9,500 branches.

The Bank Nationalisation Act will need to be amended to facilitate the merger of the three banks. The scheme of amalgamation will be tabled in Parliament. Dena Bank, though a PCA bank with restrictions on lending, has a strong current account, savings account (CASA) base and a strong MSME portfolio. Vijaya Bank has a strong credit culture and is one of the better performing banks. BOB is an aspirational bank with a strong global reach and is technologically sound. The amalgamated entity would be a strong entity leveraging on all these strong points, the government had said.

But analysts aren’t fully convinced of the synergies and are apprehensive of overlaps. While Vijaya Bank is strong in southern India, Bank of Baroda also has a national presence. There is likely to be some duplication of branches. The three banks actually mirror each other in terms of portfolio of assets and also the quality of portfolio. Dena Bank is in a bad shape with higher NPAs, higher cost to income and falling profitability. Dena Bank's numbers will pull down some of the profitability numbers of the merged entity.

Technology integration will be a big issue. Bank of Baroda recently upgraded its core banking technology from Finacle 7 to Finacle 10. It was a huge exercise lasting for months. In fact, BoB was targeting upgradation of its core banking of foreign offices from the older version. They will now have a huge task at hand to put all the three banks in the same platform.

BoB had hired many outside professionals at the top level. The merged entity will have a pack of senior people coming from Vijaya Bank and Dena Bank.