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.