The government said in a statement that as per the scheme of amalgamation, Bank of Baroda will be the transferee bank while the other two public sector banks will be transferor banks. That means the businesses of Vijaya Bank and Dena Bank will be transferred to Bank of Baroda.

The undertakings owned by Vijaya Bank and Dena Bank that will be transferred to the third state-run lender will include assets, liabilities, rights, titles, claims, licenses, approvals, privileges and properties.

"There will be no impact on the service conditions of the employees and there will be no retrenchment following the merger," Union Minister Ravi Shankar Prasad told reporters.

All permanent and regular officials of Vijaya Bank and Dena Bank will also be transferred to the merged entity.

The board of Bank of Baroda will "ensure that the interests of all transferring employees and officers of the transferor bank are protected".

The merger will help create a strong, globally competitive bank with economies of scale and enable realisation of wide-ranging synergies. Public at large will benefit in terms of enhanced access to banking services, the government noted.

The Bank of Baroda board approved a share exchange ratio under the merger subject to regulatory approvals. As part of the merger, Bank of Baroda will issue 402 shares of Rs 2 each for every 1,000 Vijaya Bank shares of Rs 10 each, and 110 shares of Rs 2 each for every 1,000 Dena Bank shares of Rs 10 each.

The clearance to the amalgamation plan by the government comes after nearly 10 lakh bank officials called a strike on two days to protest against the proposed merger and press for immediate settlement of wage negotiations.

The government had in September last year introduced its plan to merge the three lenders as part of efforts to tackle a pile of bad loans plaguing the banking sector. (Also read: Government proposes Bank of Baroda, Vijaya Bank and Dena Bank merger)