BoB tanks 10 per cent over uncertainty of merger ratio
Government calls for the merger of Vijaya Bank, Dena Bank into Bank of Baroda. The combined entity will form the third-largest bank in India with a total loan book of Rs. 14.82 lakh crore. Of the three, Dena Bank is the weakest, while Bank of Baroda and Vijaya Bank have cleaner books.
This merger plan is part of the finance ministry's alternative mechanism to fight the NPA crisis. Consolidating the many PSU banks spread across the country to fewer large banks will help these banks compete with growing number of large private banks. Besides, this move will be credit positive in nature and will enhance economic activity.
Geographically, Bank of Baroda will have a significant overlap in Gujarat, where both the banks have a strong presence. Vijaya Bank has a wide network of branches in the southern parts of the country, while Bank of Baroda has an extensive network in the western parts, whereas Dena Bank has a good presence in Maharashtra and Chhattisgarh. The merger aims at creating operational synergies and will significantly lower-cost of deposit for the merged entity. Following this announcement, the boards of directors of the three banks will now have to consider the proposal individually.
There is no word out yet on the merger ratio, analysts believe that profitability should be factored in while deciding about the swap-ratio. Due to the uncertainty about the swap-ratio, the share of Bank of Baroda and Vijaya Bank will be under pressure. Even the issues arising from staff consolidation will be a challenge for the banks, going forward.
Reacting to the news, the stocks of BoB, Vijaya Bank and DenaBank moved in different directions. The market punished the stock of BoB which was down 10 per cent at Rs. 120.35 per share or down by Rs. 14.75, while Dena Bank found takers and was stuck at its upper circuit limit at Rs. 19.10 per share, up by 19.75 per cent. Vijaya Bank, however, was marginally up at Rs. 60.50 per share or up 1.17 per cent on Tuesday at 10:28 hours.