The stock markets reacted to the news of merger swap ratio with BoB, wherein, the Dena Bank’s shareholders will get 110 shares of Bank of Baroda for every 1,0000 held. According to brokerages, the merger swap ratio is tilted in favour of Bank of Baroda. Notably, Vijaya Bank shareholders will get 402 equity shares of BoB for every 1,000 shares they held. “This implies a 6-27% discount to the current prices of Dena/Vijaya Bank and 18-43% lower than BOB’s Sep-18 valuation. We believe this is fair for BOB’s shareholders given BOB’s superior franchise and NPA coverage position. Our pro forma estimates indicate a merged company ROE of +12% by FY21F”, global brokerage firm Nomura said in a 3 January note.

The merger will become effective from April 1. Amid banking crisis, in September last year, the government had proposed to merge BoB, Vijaya and Dena as one entity with an aim to make it India’s third largest bank. The approval to merge the banks has come amid protests by bank unions and employees who are of the opinion that the move will neither help the banks nor the customers. Finance Minister Arun Jaitley had said that banks were chosen keeping in mind that the merger of two strong banks with one weak bank will lead to a strong entity.

Of the three banks, Dena Bank is the weakest, with highest NPA ratio of 11.04% and lowest business of merely Rs 1.72 lakh crore as compared to 5.4% NPA and Rs 10.2 lakh crore worth business of Bank of Baroda and 4.10% NPA and Rs 2 lakh crore worth business of Vijaya Bank. The BOB-Vijaya-Dena merger will be the first three-way merger in India’s history. Even as experts have been divided on the decision as a way to mitigate high NPAs and poor management, some banking veterans have called it a bold move.