New Delhi, Sep 17 (IANS): The government on Monday proposed the merger of three state-run banks - Dena Bank, Vijaya Bank and the Bank of Baroda - into an amalgamated entity and has directed their respective boards to consider the proposal, Finance Minister Arun Jaitley announced. This is the second such exercise in the last 18 months

"The Alternative Mechanism made the decision today and it has been proposed to the individual bank boards to take a decision. Boards would meet and after consultation take appropriate action," Jaitley said.

"This will hopefully create another mega bank which will be sustainable. The amalgamated entity would increase banking operations and its ability to go for further consolidation."

In the previous such mega merger, five associate banks and the Bharatiya Mahila Bank became part of the state-run State Bank of India on April 1, 2017, making the country's largest lender among the world's top 50 banks.

Besides the Finance Minister, the Alternative Mechanism includes Defence Minister Nirmala Sitharaman and Railway Minister Piyush Goyal.

Noting that one of the banks proposed in this merger was under the Reserve Bank of India's Prompt Corrective Action (PCA) framework on account of its massive accumulated non-performing assets (NPAs), or bad loans, Jaitley said: "The consolidated entity's capacity to absordb a weaker bank guided our decision to propose this merger to the boards."

"No employee would face adverse service conditions due to the merger," he added.

According to Finance Ministry officials here, the proposed merger would lead to the creation of the country's third largest banking entity in the country.