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Bank of Baroda to become larger than ICICI Bank from 1 April

Livemint:  January 03, 2019

New Delhi: Powered by the business of Dena Bank and Vijaya Bank, Bank of Baroda will become larger than ICICI Bank from 1 April following completion of the amalgamation process of three state-run banks. After State Bank of India (SBI) and HDFC Bank, with businesses of Rs 45.85 trillion and Rs 15.8 trillion respectively, ICICI Bank (Rs 11.02 trillion) is the third largest commercial bank now.

Based on share swap ratio, the total business of the merged entity will be Rs 15.4 trillion, only a notch below HDFC Bank but above ICICI Bank. “The merger of Bank of Baroda, Vijaya Bank and Dena Bank will create the third largest lender in the country, with advances and deposits market share of 6.9% and 7.4%, respectively,” according to a research report by Motilal Oswal.

5 things to know about Dena Bank, Vijaya Bank’s merger with Bank of Baroda:

1. If total advances are taken into account, SBI has a 21.8% market share, HDFC Bank 8.4% and the merged entity of Bank of Baroda will have a 6.9% share. ICICI Bank will be relegated to fourth position with a 6.1% market share.

2. According to the share swap ratio, shareholders will receive 402 equity shares of Bank of Baroda for every 1,000 equity shares held of Vijaya Bank. For every 1,000 shares of Dena Bank held, investors will receive 110 equity shares of Bank of Baroda. On the basis of this share swap ratio, the government’s shareholding in the merged entity will rise from 63.7% to 65.7%.

Also read: Merger of Dena Bank, Vijaya Bank, BoB an all-round losing game

3. According to market analysts, the merged Bank of Baroda will have the second largest number of branches in India at 9,511. While BoB already has a widespread network, Dena Bank and Vijaya Bank are more regional-focused banks. This will help BoB to strengthen its presence in the western, southern and north-eastern regions. Following the merger, the number of state-run banks will come down to 19 from 21.

4. The finance ministry says the amalgamation will help create a “strong globally competitive bank” in the form of Bank of Baroda by utilising economies of scale and wide-ranging synergies of Dena Bank and Vijaya Bank. BoB will take over all businesses, assets, rights, titles, claims, licenses, approvals and other privileges and all property, borrowings, liabilities and obligations of the other two banks.

5. “The bailout of Dena Bank comes at a cost, and the swap ratio reflects adjustments for net NPA; and, hence, we conclude banks with stronger balance sheet are likely to fetch better value for their businesses (in this case Vijaya Bank) while weaker franchises, which are struggling with stressed loans and provisioning burden, are likely to be bailed out at a discount,” Elara Capital said.

According to market analysts, while typical merger issues like cultural and social, network overlaps, relocations, and business team integration are likely to be an overhang on the near-term performance of Bank of Baroda, the back-end technology integration will be relatively smooth as all three banks operate on the Finacle CBS Platform.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.