Why BoB will be under pressure after merger with Dena Bank, Vijaya Bank

Dena Bank, which is under prompt corrective action from RBI, has the highest ratio of non-performing assets (NPAs). At the end of March 2018 fiscal, gross NPAs of Dena Bank stood at 22.04% or Rs 16,361.44 crore. Bank of Baroda (BoB), which is the largest among the three, will take a hit on its asset quality post merger. While gross NPAs of BoB stood at 12.36% or Rs 56,480.39 crore, gross NPAs of Vijaya Bank stood at 6.34% or Rs 7,526.09 crore.

BoB had hired many outside professionals on level three below executive directors and MD and CEO.  Being the largest among the three banks with a workforce of 55,000 employees, it will have a hard task ahead to train staff from Vijaya Bank and Dena Bank in new areas such as relationship managers, marketing and sales work etc.

Brokerages downgraded the Bank of Baroda stock citing integration challenges, value destruction for minority shareholders, and acquisition of a weak bank. Post implementation of the merger, Bank of Baroda's growth is likely to slow down and over all need for capital will increase for the merged entity, they said.

Bank of Baroda (BoB) recently upgraded its core banking technology from Finacle 7 to Finacle 10. The huge huge exercise lasted for months. In fact, the bank was targeting on upgrade of its core banking of foreign offices from the older version. With the merger, it will be a huge task to integrate the three banks on the same technological platform.

With the merger, possibilities are high that there will be likely duplication of branches. While Bank of Baroda has a national presence, Vijaya Bank has branches in the South. Many of these branches could be overlapping which means branches near to each other will have to be closed.

The merger seems to benefit Dena Bank most than the two banks. Dena Bank came under the prompt corrective action of RBI in May 2018 restricting the bank from giving new loans and new hiring. The Dena Bank stock closed 19.75% higher at 19.10 level on the BSE. On the other hand, Bank of Baroda fell 16.03% or 21 points lower at 113.45 level post the merger announcement.