Bank of Baroda-Vijaya-Dena merger: Gainers, losers, swap ratio and more
Global brokerage Jefferies referred to Bank of Baroda as the base, Vijaya Bank the kicker and Dena Bank as 'bad bank'.
- Sep 18, 2018,
- Updated Sep 18, 2018 6:43 PM IST
The government's move to merge the Bank of Baroda (BoB) with Vijaya Bank and Dena Bank didn't surprise market experts, who believe merger of weaker PSU banks with large banks make sense. Given that Dena Bank, which is among 11 banks under RBI's PCA framework, is quite small in size, they do not see its amalgamation with larger banks BoB and Vijaya Bank hurting the balance sheet of the combined entity much. They see the move working in favour of the merged entity in the long term, with Bank of Baroda offering the big 'base', and Vijaya Bank giving the 'kicker'.
However, there remain some challenges, which may keep shares of BoB under pressure in the near-term. This was reflected in the correction seen in shares of BoB in Tuesday's trade.
"We don't think the merged entity comes off terribly worse-off, at least on paper, though a smooth three-way merger is always a tall ask," noted global brokerage Jefferies. Jefferies referred to BoB as the base, Vijaya Bank the kicker and Dena Bank as 'bad bank'.
The merger announcement is a clear signal that consolidation of public sector banks (PSBs) remains on the government's agenda, and if this merger goes well, in all likelihood, further consolidation could be seen in the PSU banking space.
Chokkalingam pointed out that mergers of such banks, could be one of possible ways to bail out weakest PSBs, but it should be merit based and their valuations should take into account adjusted book value, which are negative in many cases. "Ignoring it will penalise public shareholders of efficiently run PSBs like Vijaya Bank," he said.
Aalok Shah, banking analyst at Centrum Broking sees the consolidation as a pragmatic move in the banking space.
"In the current environment of elevated NPAs and weak capital position -- the need for consolidation in the PSU banking space is more from a prudent perspective as it enables better asset quality controls and resolution therein and assessing the right amount of capital required from compliance and growth perspective," he said, adding the merger of Bank of Baroda, Dena Bank and Vijaya Bank is thus well along the targeted lines.
"We see the talks of consolidation in the PSU banking space to gain further grounds as evidences of successful integrations get more pronounced."
The government's move to merge the Bank of Baroda (BoB) with Vijaya Bank and Dena Bank didn't surprise market experts, who believe merger of weaker PSU banks with large banks make sense. Given that Dena Bank, which is among 11 banks under RBI's PCA framework, is quite small in size, they do not see its amalgamation with larger banks BoB and Vijaya Bank hurting the balance sheet of the combined entity much. They see the move working in favour of the merged entity in the long term, with Bank of Baroda offering the big 'base', and Vijaya Bank giving the 'kicker'.
However, there remain some challenges, which may keep shares of BoB under pressure in the near-term. This was reflected in the correction seen in shares of BoB in Tuesday's trade.
"We don't think the merged entity comes off terribly worse-off, at least on paper, though a smooth three-way merger is always a tall ask," noted global brokerage Jefferies. Jefferies referred to BoB as the base, Vijaya Bank the kicker and Dena Bank as 'bad bank'.
The merger announcement is a clear signal that consolidation of public sector banks (PSBs) remains on the government's agenda, and if this merger goes well, in all likelihood, further consolidation could be seen in the PSU banking space.
Chokkalingam pointed out that mergers of such banks, could be one of possible ways to bail out weakest PSBs, but it should be merit based and their valuations should take into account adjusted book value, which are negative in many cases. "Ignoring it will penalise public shareholders of efficiently run PSBs like Vijaya Bank," he said.
Aalok Shah, banking analyst at Centrum Broking sees the consolidation as a pragmatic move in the banking space.
"In the current environment of elevated NPAs and weak capital position -- the need for consolidation in the PSU banking space is more from a prudent perspective as it enables better asset quality controls and resolution therein and assessing the right amount of capital required from compliance and growth perspective," he said, adding the merger of Bank of Baroda, Dena Bank and Vijaya Bank is thus well along the targeted lines.
"We see the talks of consolidation in the PSU banking space to gain further grounds as evidences of successful integrations get more pronounced."