Shareholders are few, depositors are many.

"Imagine this: your bank makes lousy loans, runs a very unprofitable business, and even under-reports some of its losses to the regulators. And one fine morning you wake up to bag a hefty sum of Rs 576 crore (Rs 5.76 billion) for being the owner of this bank," wrote Prof A Purnanandam. "No this is not a fantasy. You are the shareholders of Dena Bank." "At the very core of this deal, the moral hazard problem is the biggest concern. In any prudent corporate restructuring deal, the reckless bank's shareholders and managers must pay for their bad decisions." How is this happening? Dena Bank, 80.74% of whose shares are owned by the government, is being merged with Vijaya Bank, 68.77% of shares owned by the government and Bank of Baroda (BOB), 63.71% of shares owned by the government. Of the 19.26% of shares of Dena Bank not held directly by the central government, 6.87% are held by the Life Insurance Corporation of India and 1.26% by the General Insurance Corporation of India (total 8.43%), both of which are also owned by the central government. So, the government is buying its own bad shares with money from its other businesses. The real losers are mutual funds and foreign investors in both Vijaya Bank and Bank of Baroda. There is no synergy in this deal, wrote MS Sriram. "Vijaya Bank has 52% of its branches in the southern region", while the BOB is strong in Gujarat and Maharashtra so these two banks complement each other. Dena Bank's footprint coincides with those of the BOB so it is only going to saddle the other two banks with bad loans. Banks in India accumulated bad loans during the growth years of 2002-2009 because of increased lending to infrastructure projects which ran into trouble because of delays in getting permission and problems in acquiring land. Central government ministers forced banks to distribute loans without due diligence, claimed Prime Minister Modi. "Much before Internet Banking, Congress Party invented phone banking and this caused the NPA mess. A phone call would get loans for their cronies and the nation suffered," Modi said. The present government has distributed Rs 6 trillion in unsecured loans, called Mudra loans, to encourage small businesses. In 2004, the then government forced the Oriental Bank of Commerce, a public sector bank to take over a failing private bank, called Global Trust Bank. Indians have little trust in politicians. The government was forced to withdraw its Financial Resolution and Deposit Insurance Bill because of a run on banks in Andhra Pradesh and Telangana. Only about 5% of people invest in shares and they are probably seen as the elite. In 2014, the government forced the takeover of National Spot Exchange Limited, 54% of which was owned by public shareholders. For politicians it makes sense to comfort millions of depositors in banks at the expense of thousands of investors in shares. That is why there was no interest in Air India when the government decided to retain 24% of shares. Hence the bank merger.