INSUBCONTINENT EXCLUSIVE:
Shares of Bank of Baroda (BoB) plunged over 10 per cent early Tuesday as the government said state-owned BoB, Vijaya Bank and Dena Bank will
be merged to create India's third-largest lender as part of efforts to revive credit and economic growth
The scrip plunged as much as 13.76 per cent to Rs 116.50.
On the other hand, Dena Bank rallied nearly 20 per cent to Rs 19.10 while Vijaya
Bank jumped 10 per cent to Rs 66.
The move follows top lender State Bank of India last year merging with itself five of its subsidiaries and
taking over Bharatiya Mahila Bank, a niche state-owned lender for women.
Announcing the plan, Finance Minister Arun Jaitley said the merger
will make the banks stronger and sustainable as well as increase their lending ability.
Giving the context of the merger, he said bank
lending was becoming weak, hurting corporate sector investments.
Phillip Capital said, "The merger of two strong banks (BoB and Vijaya) with
The government has ensured adequate growth capital for the merged entity
The contours of the merger are not yet decided, which are now left to the board of these banks
The combined entity will be renamed and rebranded based on recommendation of the board
The merger process should take 4-5 months."
The merger seems to be grossly negative for Vijaya bank and Bank of Baroda in the short term as
according to Phillip Capital.
The brokerage house further said the turnaround story of BoB will take a backseat now as most of the
The Nifty PSU Bank index was trading 1.49 per cent down at 3,010 at around 9.35 am.
According to Edelweiss Securities, since consolidation
has been always anticipated to be disadvantageous for stronger banks, the proposed merger comes across as a credible move, given the smaller
size of the weaker bank, which largely contains the adverse impact
"All the three banks operate on the same technological platform, which alleviates integration risk
Meanwhile, the proposed merger prolongs uncertainty for other handful of stronger banks (Indian, SBI, etc), which may have to absorb about a
dozen of weak banks," it added
HR challenges, including extension for BoB chairman, and capital requirements for the proposed merged entity are key monitorables,
according to Edelweiss Securities.
