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New Delhi: The Central government has announced three of India’s main public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank will be merged to form a single entity. 

Department of Financial Services (DFS) secretary Rajiv Kumar said in a press conference that the merger will create the third largest bank in India.

 Boards of the three banks will examine amalgamation proposal, he said.
 He added that the banking sector needs reforms and the government is taking care of banks' capital needs.

"The government had announced in the budget that consolidation of banks was also in our agenda and the first step has been announced," Finance Minister Jaitley has commented on the merger,

The government will continue to provide capital support to the merged bank, expected to be India's third largest, Rajeev Kumar told reporters.

"It is a major economic, commercial decision," finance minister Arun Jaitley added.

The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia's third-biggest economy.

But these banks also account for the lion's share of more than $150 billion in sour assets plaguing the sector, and need billions of dollars in new capital in the next two years to meet global Basel III capital norms.

India's decision to merge the three banks will first need to be approved by the board of directors of Bank of Baroda, Dena and Vijaya.

The government will then prepare an amalgamation scheme for the banks which will need to be approved by the cabinet of ministers and the houses of parliament, Jaitley said, adding he expected the process to be completed in the current financial year ending March 31, 2019.

The proposed merger follows a similar move by the government in February last year when it merged State Bank of India with its five subsidiary banks, helping the country's largest lender by assets increase its scale and cut expenses through synergies.

In August last year India set up a ministerial panel to speed up consolidation of other state-run banks.

(With inuts from agencies)