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Merger credit positive, will require capital support: Moody’s
The government’s proposal to merge three public sector banks evoked mixed response from investors, with Bank of Baroda and Vijaya Bank stocks ending in the red, while Dena Bank shares, which hit the upper circuit, ended with a 19.75% gain. Stocks of Bank of Baroda, the largest lender among the three, ended 16% lower at Rs. 113.45, while Vijaya Bank shares closed 5.7% lower at Rs. 56.40. Shares of Dena Bank, the weakest of the three and under prompt corrective action with its gross NPA at 22%, ended at Rs. 19.10.
‘Lacks solidity’
“While mergers are a long awaited imperative, I think the plan lacks solidity unless there is a serious quantification of capital impairment,” said Dhananjay Sinha, head of research, Emkay Global Financial Services.
“With BOB forming the biggest chunk of the business (about two-thirds), this scheme appears to create some headwinds for the bank,” Mr. Sinha added. Meanwhile, ratings agency Moody’s said the merger would be credit positive as it would increase efficiency.
“The Government of India’s plan to merge three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank, will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks,” Alka Anbarasu, vice president, Financial Institutions Group, Moody’s Investors Service, said in a statement. The merged entity, which will be the third largest bank in the country after State Bank of India and HDFC Bank, will have a market share of about 6.8% by loans. According to Moody’s, BoB and Vijaya Bank have relatively better credit metrics than Dena Bank in terms of asset quality, capitalisation and profitability.
“Nevertheless, we expect the merged entity will require capital support from the government; otherwise such a merger would not improve their capitalisation profile,” the statement said.
Source : https://www.thehindu.com/todays-paper/tp-business/bank-of-baroda-vijaya-shares-end-in-red-dena-rises-20/article24981638.ece
