According to Edelweiss report, the proposed merger has many synergies which may prove helpful for the stronger banks -Vijaya Bank and Bank of Baroda going forward.
The amalgamated bank would be the third largest bank in India by the loan book size after State bank of India, ICICI Bank.
"Considering substantial negative net worth of Dena Bank, it should get somewhere Rs 1 (as a token of gesture) or a maximum Rs 10 (face value) should be considered and hence 1 to 11 shares of BOB for every hundred shares of Dena Bank", he said.
Rejecting Congress claim that the gross NPAs stood at Rs 2.5 lakh crore when the UPA exited power, he said that actual figure was Rs 8.5 lakh crore because of the indiscriminate and disproportionate lending during 2008 to 2014.
Notably, this would be the second big merger in the banking sector after the merger of SBI associate banks with the SBI.
But these PSU banks also account for the lion's share of bad loans or NPAs plaguing the sector and need crores of rupees in new capital in the next two years to meet global Basel III capital norms. Rajiv Kumar, Department of Financial Services Secretary, announced that the decision was arrived at after meeting of the "alternative mechanism" which was set up during past year to consider consolidation of the Indian Banking Sector.
Citing the merger of SBI'e entities, FM said that it will benefit the working conditions of the employees of smaller banks.
"Alternative mechanism under Finance Minister, Arun Jaitley suggests bankofbaroda, VijayaBankIndia & dena_bank to consider amalgamation; to create India's 3rd largest globally competitive bank", he tweeted on Monday evening. The process follows as such - the bank boards takes the final call on branch mergers, real estate assets, manpower and the required re-capitalisation. This will help the merged bank to scale up across the country. "And between 2008 and 2014, there was lending of nearly Rs 55 lakh crore", he said. He referred to the government's announcement in the budget where it had said consolidation of banks was on their agenda. LIC, which has been keen to acquire a bank for some time, has made an offer for IDBI Bank because it suited their interests.
Jaitley said that the government was making a conscious decision not to merge the operations of weak lenders. Vijaya Bank shares traded at Rs 60.55, up Rs 0.75 and Dena Bank shares traded at Rs 19.10, with a gain of Rs 3.15 on the BSE.