(Bloomberg) -- Dena Bank surged the most in 10 years after India's government Monday announced a plan to combine the state-owned lender with two peers including Bank of Baroda to strengthen the debt-laden banking system.
The stock jumped by the 20 percent limit to 19.1 rupees at 10 a.m. in Mumbai, while Bank of Baroda slumped as much as 14 percent amid concern the merger would end up boosting bad loans at the largest of the three banks. The other lender, Vijaya Bank, gained 1.8 percent.
A panel headed by Finance Minister Arun Jaitley recommended combining the three into an entity that will become the third-largest lender by loans, Banking Secretary Rajiv Kumar told reporters in New Delhi late Monday. Bank of Baroda shares slid on worries that the proposal will disadvantage the lender, at least in the short term, after it returned to profitability in the June quarter.
Combining with the bad debt-burdened Dena would mean “Bank of Baroda would go back a few years before it can start improving,” said Kush Ghodasara, founder of Luvkush Finserve Ltd. “This merger may be beneficial in the long term, but for the next two years it is going to hurt Bank of Baroda.”
The combined entity will have outstanding loans of 6.4 trillion rupees ($88 billion) and 9,489 branches, the second-highest among Indian banks, according to the government.
What strategists say about India's triple bank merger proposal
Indian lenders have already taken dozens of top delinquent debtors to the bankruptcy court as overdue borrowings hamper fresh investment. In May, the nation's first big success under the new insolvency law handed about $5 billion to lenders after Tata Steel Ltd. bought insolvent Bhushan Steel Ltd.
--With assistance from Abhishek Vishnoi and Vrishti Beniwal.
To contact the reporters on this story: Shruti Srivastava in New Delhi at ssrivastav74@bloomberg.net;Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, ;Unni Krishnan at ukrishnan2@bloomberg.net, Ravil Shirodkar, Russell Ward
©2018 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
