Share prices of Bank of Baroda declined by more than 17% on Tuesday, a day after the government announced its merger with state-run Dena Bank and Vijaya Bank. At the end of the day, Bank of Baroda’s shares closed at Rs 112.20 on the BSE.
However, the shares of Vijaya Bank and Dena Bank rose by 1.25% and 19.75% respectively after the markets opened. While Dena Bank’s share price remained constant at Rs 19.05, Vijaya Bank slid over 7% to Rs 55.60.
Analysts say the merger is expected to lead to a sharp surge in bad loans for Bank of Baroda at a time when it is already reporting huge losses from higher provisioning, according to Mint.
“The merger of two strong banks [Bank of Baroda and Vijaya Bank] with a weak bank [Dena Bank] seems like a bailout package for Dena Bank, keeping aside strong bank’s minority shareholder’s interest,” said PhillipCapital in a note to its investors.
In 2017-’18, Bank of Baroda reported a net loss of Rs 2,432 crore against a profit of Rs 1,383 crore in the previous financial year. Dena Bank reported a loss of Rs 1,923.20 crore in 2017-’18 against a loss of Rs 863.60 crore last year while Vijaya Bank reported a profit of Rs 727 crore this financial year against a profit of Rs 750.50 crore in the previous fiscal.
The government has said that it would continue to provide capital support to the merged entity, which will be the third largest bank in the country.
Credit ratings agency Moody’s said the merger plan “will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks”, reported ANI. Bank of Baroda and Vijaya Bank have relatively better credit metrics than Dena Bank in terms of asset quality, capitalisation and profitability, it said.