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25 September 2017

Hot Pursuit

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Dena Bank recovers after buzz of merger with Vijaya Bank

Shares of Vijaya Bank dropped 2.09% to Rs 58.50.

Meanwhile, the S&P BSE Sensex was down 381.50 points, or 1.18% to 31,988.54. The S&P BSE Mid-Cap index was down 343.15 points, or 2.14% to 15,701.06.

High volumes were witnessed on the counter. On the BSE, 5.33 lakh shares were traded in Dena Bank counter so far, compared with average daily volumes of 1.66 lakh shares in the past one quarter. The stock had hit a high of Rs 33.45 and a low of Rs 30.55 so far during the day. The stock had hit a 52-week high of Rs 50 on 9 May 2017. The stock had hit a 52-week low of Rs 30.30 on 22 August 2017.

The stock had underperformed the market over the past one month till 21 September 2017, remaining unchnaged compared with the 3.55% gains in the Sensex. The scrip had also underperformed the market in past one quarter, falling 9.12% as against Sensex's 3.47% gains. The stock had also underperformed the market over the past one year, dropping 18.04% compared with the 13.55% gains in the Sensex.

The mid-cap state-run bank has equity capital of Rs 993.43 crore. Face value per share is Rs 10.

In early signs of the government's ambitious plan for consolidation among state-run lenders to help them gain efficiency and scale, Vijaya Bank and Dena Bank have expressed interest in a merger and are discussing synergies.

A possible merger between the two relatively smaller state-run banks will lead to formation of a large mid-sized bank, report said.

The proposed merger between Vijaya Bank and Dena Bank is being considered based on both the lenders complimenting each other on their geographical reach, the report said, as Vijaya Bank has strong presence in Southern India, while Dena Bank is well-positioned in the West.

However, the capital requirements for the merged entity would likely increase, on account of Dena Bank's high non-performing assets. To tackle the menace of the bad loans and state-run banks' stressed balance sheets is one of the primary objectives behind the government's plan for consolidation.

The report said that the merger between Vijaya Bank and Dena Bank could be completed by the end of this fiscal year if the proposal is approved by the government.

The government is pushing for consolidation among the state-run banks in order to help the lenders gain efficiency and scale, and operate without the support of repeated capital infusion to bolster their balance sheets. The government is reported to be mulling creating six large public sector banks of global scale, also with an aim to help the smaller banks with weaker balance sheets get support from the larger ones with strong finances.

Earlier last month, the Union Cabinet had given an in-principle approval for alternative mechanism for PSU banks merger. The public sector banks' boards will themselves decide the final contours of the proposed amalgamation, and will then seek approval from the GoM (Group of Ministers).

Government of India holds 68.56% stake in Dena Bank (as on 30 June 2017). Government of India holds 70.33% stake in Vijaya Bank (as on 30 June 2017).

Dena Bank reported net loss of Rs 132.65 crore in Q1 June 2017 compared with net loss of Rs 279.35 crore in Q1 June 2016. Net sales fell 9.9% to Rs 2620.28 crore in Q1 June 2017 over Q1 June 2016.

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