NEW DELHI: The government on Monday said it will merge three state-run lenders-- Bank of Baroda, Vijaya Bank and Dena Bank to create India's third largest bank.Last year, five associate banks of SBI and Bharatiya Mahila Bank were merged with State Bank of India to catapult the country's largest lender to among the top 50 banks in the world.The government says the new entity will see "substantial rise in customer base, market reach, operational efficiency and wider bouquet of products and services for customers." A bigger bank gains from economies of scale and can cut costs by utilising synergies of network.However, the real reason for the merger probably lies somewhere else.Government owns a majority stake in 21 lenders, which account for more than two-thirds of banking assets. However, they also account for nearly 90 per cent of non-performing loans in the banking sector -- Rs 8.9 lakh crore out of the total Rs 10 lakh crore. 11 of the 21 public sector banks are operating under an emergency programme, supervised by Reserve Bank of India, which restricts fresh lending. Mergers of weak banks also mean fewer, better-capitalised banks and improved regulatory oversight.The government says that three banks will continue to work independently post merger and there won't be any job loss.So how does it help? Take a look at these figures:On Tuesday morning, the markets reacted very sharply to the merger. Bank of Baroda , the bank with the strongest fundamentals among the three, saw its stock plunging. At 10.30 am, the stock was down 12 per cent at Rs 119 on the NSE. In contrast, Dena Bank -- the weakest of the lot -- made huge gains in early trade and was up almost 20 per cent at Rs 19.05. The Vijaya Bank stock was also in the green, gaining nearly a per cent.Experts, however, opine that bank mergers are at best a short-term fix for the bad loan problem, with the bigger issue being the government interference in their functioning and appointments that has allowed private banks to corner almost 70 per cent of new deposits and 80 per cent of incremental loans.