Bank of Baroda shares topped volume and turnover on the National Stock Exchange (NSE) on Tuesday after Government of India proposed the merger of relatively smaller PSU banks -- Vijaya Bank and Dena Bank -- with BoB.
Bank of Baroda shares topped volume and turnover on the National Stock Exchange (NSE) on Tuesday after Government of India proposed the merger of relatively smaller PSU banks — Vijaya Bank and Dena Bank — with BoB. According to the data available with the stock exchange, about Rs 500 crore worth of equity shares of Bank of Baroda were traded in first 50 minutes of stock market dealing on Tuesday amid the merger buzz. Bank of Baroda, India’s third-largest PSU bank as of now, together with Vijaya Bank and Dena Bank will become country’s third largest bank, upon consolidation.
The Union Finance Minister Arun Jaitley sais the merger of two strong banks with one weak bank will lead to a strong entity while expressing the rationale behind the merger. Though the merger of Bank of Baroda with smaller state-owned peers was not well received by investors with Bank of Baroda shares witnessing the steepest plunge in more than 3 years. On Tuesday morning, Bank of Baroda share price crashed as much as 14.16% to a 2-month low of Rs 116.1 on NSE. Bank of Baroda share price made a low of Rs 114.7 on 19 July 2018.
As at 11:59 am on Tuesday, 6.79 crore equity shares of Bank of Baroda were traded on NSE translating into a turnover of Rs 824 crore.
Following the merger proposal by the government, the next step would be to schedule the board meetings of the banks said P.S. Jayakumar, MD & CEO, Bank of Baroda in an interview to CNBC TV18. Bank of Baroda was consulted on the bank merger and it would be safe to assume Bank of Baroda as the head of the merged entity, Jayakumar said further.
Brokerages seemed to have not very hopeful about the prospects for Bank of Baroda. Motilal Oswal Securities has placed Bank of Baroda “under review” and has said that the government has chosen the three banks for the merger as they fit well into the strategy of ‘anchor bank (Bank of Baroda) + good bank (Vijaya Bank) + stressed bank (Dena Bank)’. Such a large-scale merger will present its own set of challenges in the near term, particularly as the NPL cycle is in the early stages of recovery, Motilal Oswal Securities said.
“We believe Bank of Baroda stands to benefit from the merger in the long term. We put our rating under review as we await more details
on the merger ratio and the business plan of the combined entity. In the near term, Dena Bank clearly remains the biggest beneficiary from this announcement, Motilal Oswal Securities added.
The global credit ratings agency Moody’s Investors Service on Tuesday said the plan to merge Bank of Baroda, Vijaya Bank and Dena Bank will be credit positive as it would improve their efficiency and governance. “The government of India’s plan to merge three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank, will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks,” Moody’s Investors Service VP (Financial Institutions Group) Alka Anbarasu was quoted in a PTI report.
According to a Reuters report, Deutsche Bank has downgraded Bank of Baroda stock to “hold” from “buy” and has slashed the target price to Rs 145 from Rs 180. Deutsche Bank analysts see the Bank of Baroda’s shareholders facing challenges such as likely dilution in focus of the bank’s management towards the merger and away from growth while shareholders of Vijaya Bank and Dena Bank may be given some premium at the cost of Bank of Baroda shareholders, the report added.