Dena Bank hits 10-year high

Bloomberg

Dena Bank surged the most in 10 years after India’s government announced a plan to combine the state-owned lender with two peers including Bank of Baroda to strengthen the debt-laden banking system.
The stock jumped by the 20 percent limit to 19.1 rupees in Mumbai, while Bank of Baroda slumped as much as 14 percent amid concern the merger would end up boosting bad loans at the largest of the three banks. The other lender, Vijaya Bank, gained 1.8 percent.
A panel headed by Finance Minister Arun Jaitley recommended combining the three into an entity that will become the third-largest lender by loans, Banking Secretary Rajiv Kumar told reporters in New Delhi. Bank of Baroda shares slid on worries that the proposal will disadvantage the lender, at least in the short term, after it returned to profitability in the June quarter.
Combining with the bad debt-burdened Dena would mean “Bank of Baroda would go back a few years before it can start improving,” said Kush Ghodasara, founder of Luvkush Finserve Ltd. “This merger may be beneficial in the long term, but for the next two years it is going to hurt Bank of Baroda.”
The combined entity will have outstanding loans of
6.4 trillion rupees ($88 billion) and 9,489 branches, the second-highest among Indian banks, according to the government.
Indian lenders have already taken dozens of top delinquent debtors to the bankruptcy court as overdue borrowings hamper fresh investment. In May, the nation’s first big success under the new insolvency law handed about $5 billion to lenders after Tata Steel Ltd. bought insolvent Bhushan Steel Ltd.