Merger negative for Vijaya Bank, BoB; don't rush to buy PSBs, say analysts

The three state-owned banks ‐ Bank of Baroda, Dena Bank and Vijaya Bank ‐ saw a mixed reaction at the bourses on Tuesday, a day after the government proposed to amalgamate them into a combined entity.

The largest of the three, Bank of Baroda, tanked over 10 per cent in intra-day deals to Rs 116 levels on the NSE, Dena Bank hit its upper circuit limit for the day of 20 per cent at Rs 19.05. Vijaya Bank, too, moved up over 2 per cent to hit an intra-day high of Rs 66 on the NSE. In comparison, the Nifty 50 was trading flat.

While calling it a step in the right direction, analysts say this merger could be a game changer for the PSU banking space and throws up the possibility of public sector banks (PSBs) being ultimately consolidated into seven large entities going ahead.

“The move is a step in the right direction. Vijaya Bank is concentrated in southern India where Bank of Baroda does not have much presence. Dena Bank has a focus in Maharashtra. Such a strategy would also minimise the need for retrenching a significant number of employees and also for shutting down of a large number of branches as the concentration of these three banks are largely unique in terms of geographies and they would complement each other,” says G Chokkalingam, founder and managing director at Equinomics Research.

Bank of Baroda tanks 14%, Dena Bank hits upper circuit on merger news

Shares of state-run lender Bank of Baroda declined as much as 14 per cent in the early trade on Tuesday after the government on Monday announced it will will merge state-owned Vijaya Bank, Dena Bank and Bank of Baroda to create India's third largest lender.

Cheered by the news, Dena Bank hit an upper circuit limit of 20 per cent in the opening deals while Vijaya Bank was trading flat at Rs 60.20 apiece on BSE, up 0.67 per cent.

The central government on Monday proposed to create the country’s third-largest bank by amalgamating Mumbai-based Dena Bank and Bengaluru-based Vijaya Bank with much larger Bank of Baroda (BoB) in an all-stock deal. The banks’ boards are expected to meet in 10 days to take a call. The deal, though, is almost a certainty since the government is the majority owner. READ MORE

“The government had announced in the Budget that consolidating banks was on our agenda and the first step has been announced,” Finance Minister Arun Jaitley said. He justified the action, stating that the government and the Reserve Bank of India (RBI) were forced to take “concrete steps” once the asset quality review of banks revealed the bad debt rot in Indian banks was far deeper than what was projected earlier.

BoB, Dena Bank, Vijaya Bank, HCL Tech among top stocks to track

Below is the list of top stocks that may remain on investors’radar in today's session -

BoB, Dena Bank, Vijaya Bank: Shares of the three lenders are likely to remain in focus after the government on Monday proposed to create the country’s third-largest bank by amalgamating Mumbai-based Dena Bank and Bengaluru-based Vijaya Bank with much larger Bank of Baroda (BoB) in an all-stock deal. The banks’ boards are expected to meet in 10 days to take a call.

Tata Motors: Tata Motors-owned Jaguar Land Rover on September 17 confirmed a cut in its production schedule at the Castle Bromwich plant manufacturing Jaguar cars in the West Midlands region of England due to "continuing headwinds" impacting the British car industry.

Idea Cellular: According to news reports, the board of Vodafone Idea has approved the merger of its unit Aditya Birla Telecom (ABTL) with itself, moving a step closer towards monetizing the company's 11.15 per cent stake in Indus Towers to pare debt.

Avenue Supermarts: The company said in a BSE filing that it has issued Commercial Papers of Rs 70 crore on September 17, 2018.

Bank of Baroda hits over two-year low; falls 10% in one week

Shares of Bank of Baroda (BOB) hit an over two-year low of Rs 123 per share, down 2%, extending their 8% decline on the BSE in the past five days. The stock of state-owned bank was trading at its lowest level since February 2016.

The Central Bureau of Investigation (CBI) on June 12, 2018 said that it had registered four more cases against eight persons in connection with the Srijan scam involving a Bhagalpur NGO that allegedly pilfered funds meant for government welfare schemes.

CBI had booked the former senior branch manager of the BOB, Bhagalpur, its cashier, former District Welfare Officer Arun Kumar, Srijan's cashier, its other employees and unknown others. In another case the agency booked the current manager of BOB's Bhagalpur branch, then branch manager of Indian Bank and all office-bearers of Srijan, IANS report suggested.

Bank of Baroda gains on improved assets quality in Q2

Bank of Baroda was up 4% to Rs 181 on the BSE in intra-day trade after the state-owned lender reported improved operational performance and assets quality in September quarter (Q2FY18). The stock rebounded 7% from its early morning low of Rs 169.

Bank of Baroda reported 13% year on year (YoY) growth in its operating profit at Rs 3,042 crore during Q2FY18, driven by growth both in interest and fee income.

Net interest income for the quarter rose by 8.58% to Rs 3,720 crore from Rs 3,426 crore in the corresponding period of the previous year. Other income which includes fees and commissions rose by 11.2% to Rs 1,737 crore.

Domestic net interest margin during Q2FY18 has improved by 20 bps sequentially at 2.68% driven by reduction in cost of deposits & improvement in yield on advances, Bank of Baroda said in a statement.

Asset quality improved as gross non-performing assets (NPA) ratio and net NPA ratio stood at 11.16% and 5.05% on September 2017, against 11.35% and 5.46% respectively as on September 2016. Gross NPA and Net NPA stood at 11.40% and 5.17% as on June 2017.

Net profit during the quarter under review however declined 35.7% to Rs 355 crore against Rs 552 crore in a year ago quarter due to sharp rise in provisions and contingencies.

According to analysts at Edelweiss Securities, Q2FY18 performance is encouraging with respect to asset quality and growth; but, sustainability is key.

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