Pedestrians walk past a Bank of Baroda bank branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Bank Of Baroda 2.0: What India’s Third Largest Lender Will Look Like

Starting April 1, Bank of Baroda will become India’s third largest lender, once Dena Bank and Vijaya Bank are amalgamated into it. The three-way merger approved on January 02, 2019 becomes effective from Monday.

The merged entity will an advances base of Rs 6.6 lakh crore and a deposit base of Rs 8.7 lakh crore. It will have just under 10,000 branches and more than 84,000 employees. It will be the second largest public sector bank after State Bank of India.

The Bank of Baroda-Dena Bank-Vijaya Bank merger is second major public sector bank consolidation approved by the Government during its five-year term. In 2017, State Bank of India merged with its five associate banks and the Bharatiya Mahila Bank.

Also read: Government Announces Merger Of Bank Of Baroda, Dena Bank And Vijaya Bank

What It Means For Customers?

The merger process will begin with a consolidation of brands under the Bank of Baroda banner. As a result, all customers of Dena Bank and Vijaya Bank will become customers of Bank of Baroda. All branches will be rebranded accordingly as well.

”Regarding your banking services, currently there will be no change. You will continue to get services from the same account number, passbook, cheque book, ATM/debit and credit card number,“ said Bank of Baroda in a message sent out to customers last week.

Vijaya Bank issued a notice to customers, asking them to update their Aadhaar details. In a separate letter to its customers, Dena Bank said that they can continue to avail banking services with their existing account numbers, debit/credit cards, passbooks, and internet/mobile banking, until further notice.

However, eventually customers will need to update their details with entities including the Income Tax department, insurance companies, mutual funds, the National Pension System (NPS), among others. A re-organisation of branches and ATMs to eliminate any overlaps will also be conducted, potentially inconveniencing some customers.

What It Means For Shareholders?

Shareholders of Dena Bank and Vijaya Bank will get shares of Bank of Baroda based on an agreed swap ratio.

  • For every 1000 shares of Vijaya Bank at Rs 10 each, investors will receive 402 equity shares of BoB at Rs 2 each
  • And for every 1000 shares of Dena Bank at Rs 10 each, investors will receive 110 equity shares of BoB at Rs 2 each

The swap ratios were based on the stock prices on September 17, 2018, the day the government announced the merger, BloombergQuint had reported.

Analysts believe that the swap ratio agreed upon is positive for Bank of Baroda shareholders.

Reliance Securities, in a note issued soon after the swap ratios were announced, said that Bank of Baroda shareholders are set to gain more than shareholders of Vijaya Bank and Dena Bank. ‘”We believe Bank of Baroda plus Vijaya Bank adjusted for Dena Bank's pains is eventually a gain for Bank of Baroda shareholders,” the brokerage house said.

“Bank of Baroda is not paying a significant premium for these entities, specifically for Dena Bank (a stressed bank),” JPMorgan had said.

The deal means about 30 percent dilution for Bank of Baroda and a trailing book value per share accretion of around 15 percent, Morgan Stanley said.

Also read: Supreme Court Refuses To Stay Merger Of Vijaya Bank, Dena Bank With Bank Of Baroda

Tough Task Ahead

With the formalities of the merger completed, the focus will now shift to consolidating the three diverse entities.

Apart from overcoming cultural differences, a rationalisation of staff and branches will need to be undertaken. While certain departments like the treasury unit can be consolidated immediately, others such as the credit departments may take time to start operating as one unit. While Bank of Baroda has not yet announced a ‘voluntary retirement scheme’, SBI had undertaken one to rationalise staff soon after its merger with SBI’s associate banks.

The large reorganisation needed has left some analysts skeptical about the near-term outlook for Bank of Baroda. Bloomberg data shows that the proportion of analysts with a ‘Buy’ call on the stock have reduced since the merger.

Fitch Ratings, in a note on March 25, said that it may take another four to six months before the full impact of the merger is visible on Bank of Baroda’s combined financial position. The government has provided Bank of Baroda with an additional Rs 5000 crore in capital for any requirements arising out of the merger.

JPMorgan also struck a skeptical note and said that “synergy gains from the merger will likely take a long time to accrue, given the large employee base of the combined bank and technology integration required.”

CLSA, however, said that the merger does not materially dilute the asset quality, CASA or capitalisation for Bank of Baroda.

The merged lender will continue to be headed by PS Jayakumar until September when his current term expires. Veteran bureaucrat Hasmukh Adhia has been appointed chairman of the bank.