Cabinet approves merger of state-run Vijaya bank, Dena bank and Bank of Baroda

India's cabinet has approved the merger of state-run Vijaya Bank and Dena Bank with Bank of Baroda, the government said on Wednesday, in a step aimed at cleaning up the country's banking system.

India had announced the merger plan last year amid growing concerns over rising bad loans in the banking sector. Banking sector reforms are a major plank of Prime Minister Narendra Modi's government's plans to revive lending which has slowed as banks struggle with bad debt.

The merged bank will become India's second largest public sector bank and will "help create a strong globally competitive bank", the government said in a statement.

The merger will come into force on April 1, the government said.