Shares of state-run Dena Bank and Vijaya Bank plunged on Thursday after the Cabinet approved their merger with Bank of Baroda late on Wednesday, in an attempt to clean up the country's banking system.
Under the merger plan, Bank of Baroda said it would issue 110 shares of Rs 2 each for every 1,000 shares of Dena Bank worth Rs 10 each, while Vijaya Bank shareholders would get 402 Bank of Baroda shares of Rs 2 each for every 1,000 shares of Rs 10 each.
Morgan Stanley said the swap ratio for the merger implies a discount of about 27 per cent to Dena Bank's shares and a discount of about 6 per cent to Vijaya Bank's shares against their last closing.
Shares of Dena Bank skidded as much as 19.8 per cent in their sharpest intraday drop since January 2008, while Vijaya Bank fell nearly 8 per cent in its biggest decline since September 24, 2018. Bank of Baroda climbed as much as 3.4 per cent.
Last year, the government revealed plans to merge the three state-run lenders amid efforts to tackle a pile of bad loans plaguing the banking sector and revive credit growth.
The merger, which will be effective on April 1, will make Bank of Baroda the country's second-largest public sector bank.
At 1:01 pm, shares in Bank of Baroda were trading 1.6 per cent higher on the NSE, while those in Vijaya Bank and Dena Bank were down 6.1 per cent and 18.4 per cent respectively.