The merger comes as part of the government's efforts to tackle lakhs of crores of bad loans plaguing the sector and revive credit growth.

Finance Minister Arun Jaitley has on several occasions stressed the need to have stronger consolidated banks, which could have economies of scale and operational efficiencies.

The government is reportedly studying various models of PSU bank consolidation though a concrete decision will be taken only after the success of the Bank of Baroda (BoB) merger.

"The success of the Bank of Baroda merger will be looked at closely before deciding on a future course," news agency IANS quoted a source as saying last week.

The government owns majority stakes in 21 banks that account for more than two-thirds of the banking assets in the country.

According to the scheme of amalgamation, the businesses of Vijaya Bank and Dena Bank are transferred to Bank of Baroda. The permanent and regular officials of Vijaya Bank and Dena Bank are now transferred to the merged entity.

The three-way merger - creating the third largest PSU bank after SBI and PNB - creates a combined business of Rs. 14,82,422 crore (taking into account business worth Rs. 1,72,937 crore and Rs. 2,79,674 crore of Dena Bank and Vijaya Bank respectively).

The amalgamation comes into force two years after five associate banks and Bharatiya Mahila Bank became a part of State Bank of India (SBI).

For the quarter ended December 31, Bank of Baroda reported a more than four times increase in net profit, though it still failed to meet Street estimates due to higher provisions for bad loans.