BoB is the top loser

Looks like in the proposed merger of Dena Bank, Vijaya Bank and BoB, the market has formed the perception that BoB is at the biggest disadvantage while Dena and Vijaya Bank are gainers. BoB is the top loser on the BSE since opening bell, going down 14% to Rs.116.50. On the other hand, Dena Bank was frozen at the 20% UC the moment it opened for trading at Rs.19.10. Vijaya Bank rose over 10% at Rs.66.

Following the proposal, two brokerage houses went on to downgrade BoB while Dena Bank has received a thumbs up as it gains the most – it is currently under RBI’s prompt corrective action (PCA) framework and once merged, will be back to being a normal/routine operations.

The net NPA ratio of Dena Bank is at 11.04%, BoB at 5.40% and 4.10% for Vijaya Bank. As against this, the combined entity will have net NPA ratio of 5.71%.

The FM, 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.