(Reuters) – Shares of state-run Dena Bank and Vijaya Bank plunged on Thursday after the federal cabinet approved their merger with Bank of Baroda late on Wednesday, in an attempt to clean up the country’s banking system.
Under the merger plan, Bank of Baroda said it would issue 110 shares of 2 rupees each for every 1,000 shares of Dena Bank worth 10 rupees each, while Vijaya Bank’s shareholders would get 402 Bank of Baroda shares of 2 rupees each for every 1,000 shares of 10 rupees each.
Morgan Stanley said the swap ratio for the merger implies a discount of about 27 percent to Dena Bank’s shares and a discount of about 6 percent to Vijaya Bank’s shares against their last closing.
Shares of Dena Bank skidded as much as 19.8 percent in their sharpest intraday drop since January 2008, while Vijaya Bank fell nearly 8 percent in its biggest decline since Sept. 24, 2018. Bank of Baroda climbed as much as 3.4 percent.
Last year, India revealed plans to merge the three state-run lenders amid efforts to tackle a pile of bad loans plaguing the banking sector and revive credit growth.
The merger, which will be effective on April 1, will make Bank of Baroda the country’s second-largest public sector bank.
Reporting by Chandini Monnappa in Bengaluru; Editing by Subhranshu Sahu