Cheered by the news, Dena Bank hit an upper circuit limit of 20 per cent in the opening deals while Vijaya Bank was trading flat at Rs 60.20 apiece on BSE, up 0.67 per cent.

The central government on Monday proposed to create the country’s third-largest bank by amalgamating Mumbai-based Dena Bank and Bengaluru-based Vijaya Bank with much larger Bank of Baroda (BoB) in an all-stock deal. The banks’ boards are expected to meet in 10 days to take a call. The deal, though, is almost a certainty since the government is the majority owner. READ MORE

“The government had announced in the Budget that consolidating banks was on our agenda and the first step has been announced,” Finance Minister Arun Jaitley said. He justified the action, stating that the government and the Reserve Bank of India (RBI) were forced to take “concrete steps” once the asset quality review of banks revealed the bad debt rot in Indian banks was far deeper than what was projected earlier.

Earlier the government merged State Bank of India’s associate banks with the parent, and let Life Insurance Corporation take over bad debt-ridden IDBI Bank. Unions have opposed both the moves.

At 09:31 am, shares of Bank of Baroda were trading 10 per cent down at Rs 122 apiece on BSE while those of Vijaya Bank were up over 2 per cent at Rs 61. Dena Bank was locked in the upper circuit limit of 20 per cent at Rs 19.10.