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After Centre proposes merger, Dena, Vijaya Bank stocks trade in green; Bank of Baroda down 13% in early trade

The government Monday proposed amalgamation of three public sector banks — Bank of Baroda, Vijaya Bank and Dena Bank — to create what will be India’s third largest bank in terms of total business at Rs 14.82 lakh crore.

Dena Bank’s shares prices saw a rise of almost 20 per cent early Tuesday after the Centre proposed its merger with two other public sector banks – Bank of Baroda and Vijaya Bank. The shares of Bank of Baroda, however, fell 13.7 per cent, while Vijaya Bank’s shares rose by about 10 per cent in opening trade.

On Monday, the Centre proposed the merger of the three public sector banks to create what will be India’s third largest bank in terms of total business at Rs 14.82 lakh crore. The proposal would particularly help Dena Bank, the weakest of the three, which is currently under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework and has been barred from extending fresh loans.

The first major banking sector consolidation during the tenure of the NDA government was the merger of five associate banks of State Bank of India with itself. The government has also moved on Life Insurance Corporation of India’s proposal to acquire majority stake in IDBI Bank.

Announcing Monday’s decision, Finance Minister Arun Jaitley said the government did not want a merger of weak banks and has, therefore, suggested the idea of amalgamating one weak bank and two strong banks, in order to create an entity which is able to increase banking operations. This also indicates the approach that the government may deploy in future consolidation.

In contrast to net non performing assets (NPA) ratio of 11.04 per cent for Dena Bank, 5.40 per cent for Bank of Baroda and 4.10 per cent for Vijaya Bank, the combined entity will have net NPA ratio of 5.71 per cent, according to a presentation by Rajiv Kumar, Secretary, Department of Financial Services.

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