A day after the government announced the merger of Bank of Baroda, Dena Bank and Vijaya Bank, stocks of the public sector lenders made major moves on the bourses. While Bank of Baroda fell up to 13. 76%, Vijaya Bank surged 10.36% on the BSE. Their weaker counterpart Dena Bank hit the upper circuit of 19.75% to 19.10 level.
Dena Bank was on RBI's Prompt Corrective Action (PCA) list and other two banks have the strength to subsume a weaker bank, Finance Minister Arun Jaitley said on Monday. The move is likely to reduce the capital the government needs to infuse into these lenders and will create the country's third-largest lender.
At 9:33 am, the Bank of Baroda stock was trading 9.44% or 13 points lower at 122.35 level on the BSE. The market capitalisation of the stock stood at Rs 35,471 crore.
The large cap stock has fallen after two days of consecutive gain. It opened with a loss of 10% in trade today. The stock has lost 16% in one year and is down 24% since the beginning of this year.
The Vijaya Bank stock was trading 1.42% higher at 60.65 level. Its market capitalisation stood at Rs 7,799 crore. The mid cap stock has been gaining for the last three days and has risen nearly 3% during the period. The stock has lost merely 1.38% during the last one year and is down 11.27% since the beginning of this year.
The Dena Bank stock rose was trading 19.75% higher at Rs 19.10. Its market capitalisation stood at Rs 3,603 crore. Currently, the small cap stock has only buyers and no sellers. The stock is down 38.68% during the last one year and has fallen 24.51% since the beginning of this year.
On Monday, shares of Bank of Baroda rose 0.41% to 135.10 on BSE, Dena Bank fell 0.6% to 15.95 while Vijaya Bank rose 1% to 59.80.
Meanwhile, the BSE Bankex was trading 34 points lower at 30,256 level. Bank Nifty too was down 54 points lower at 26,754 level.
The government will continue to provide capital support to the merged bank with assets of Rs 14.82 lakh crore ($204 billion), said financial services secretary Rajeev Kumar. The new bank is expected to have a net non-performing asset ratio of 5.71 percent of its total assets, nearly 9,500 bank branches and 85,675 employees
The merger move follows top lender State Bank of India last year merging with itself five of its subsidiary banks and taking over Bharatiya Mahila Bank, a niche state-run lender for women.
Announcing the plan, Finance Minister Arun Jaitley said the merger will make the banks stronger and sustainable as well as increase their lending ability. Giving the context of the merger, he said bank lending was becoming weak, hurting corporate sector investments.
Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs, he said.
The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in the Asia's third biggest economy.
But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms.