State-run banks lose $3.55 bn in market cap on merger plan

SHARE PRICES OF STATERUN LENDERS PLUNGED ON CONCERNS THAT GOVT MAY ANNOUNCE MORE SUCH FORCED MERGERS

: State-run banks lost nearly $3.55 billion in market value on Tuesday after the government announced plans to combine two relatively healthier big banks with a weaker one.

Share prices of state-run lenders plunged on concerns that more such forced mergers may be announced by the government, said analysts.

Such moves may lead to higher provisioning for bad debt and drag down profits.

Shares of Bank of Baroda (BoB) fell more than 16.03%, the steepest fall since May 2004 to ₹113.45 on BSE. The drop erased nearly ₹5,700 crore of BoB’s market value.

The government on Monday disclosed plans to merge BoB, Vijaya Bank and Dena Bank. Vijaya Bank fell 5.7% to ₹56.40, but Dena Bank surged 20% to ₹19.10.

“The merger of two strong banks (BoB and Vijaya) 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.

The government had last year merged State Bank of India (SBI) with five of its associate banks, which led to a surge in bad loans. It also resulted in a third straight quarterly loss for SBI and deterioration in asset quality. For the quarters of June 2018, March 2018 and December 2017, SBI reported a loss of ₹4,875.85 crore, ₹7,718.17 crore and ₹2,416.37 crore, respectively.

The Nifty PSU Bank Index fell 5.4% on Tuesday as the sell-out covered almost all state-run banks.

Indian Bank declined 8.9%, Union Bank of India 8.8%, Canara Bank 7.5%, Syndicate Bank 6.2%, Andhra Bank 6%, Oriental Bank of Commerce 5.3%, Bank of India 5.2%, Punjab National Bank 4.2%, SBI 4.2%, IDBI Bank 3.5%, Allahabad Bank 1.9%.

BoB incurred a net loss of ₹2,432 crore in fiscal year 2018, against a profit of ₹1,383 crore last year. Gross non-performing assets (NPAs) increased to 12.3% from 10.5% a year earlier.

Vijaya Bank reported a profit of ₹727 crore in fiscal year 2018 against ₹750.50 crore a year ago. Gross NPAs narrowed to 6.3% from 6.6% last year.

In comparison, Dena Bank reported a loss of ₹1,923.20 crore in fiscal year 2018 against ₹863.60 crore loss last year. Bad loans surged to 22% from 16.3% a year earlier.