Merger negative for Vijaya Bank, BoB; don't rush to buy PSBs, say analysts

The merger seems to be grossly negative for Vijaya Bank and Bank of Baroda in the short term, as the negative net worth of Dena Bank will have to be absorbed by the merged entity

The three state-owned banks -- Bank of Baroda, Dena Bank and Vijaya Bank -- saw a mixed reaction at the bourses on Tuesday, a day after the government proposed to amalgamate them into a combined entity. While Dena Bank ended the day firm, Vijaya Bank and Bank of Baroda lost ground.

Calling it a step in the right direction, analysts say this merger could be a game changer for the PSU banking space and throws up the possibility of public sector banks (PSBs) being ultimately consolidated into seven large entities going ahead. 

On the fundamental front, however, analysts at Phillip