Public sector bank stocks, led by Corporation Bank and Punjab National Bank, tumbled up to 9.3% on Tuesday after the government announced the merger of 10 State-run lenders into four.
Shares of Corporation Bank tanked 9.28% to ₹17.10, Punjab National Bank plunged 8.54% to ₹59.40, Canara Bank dropped 7.54% to its one-year low of ₹203.90.
Oriental Bank of Commerce cracked 7.34% to ₹68.10, Union Bank of India plunged 6.79% to its 52-week low of ₹54.90, Allahabad Bank declined by 2.83% to ₹34.30 and United Bank tanked 0.28% to ₹10.39 on the BSE.
However, Andhra Bank rose 5.31% to ₹20.80 and Syndicate Bank gained 3.55% to ₹33.50.
Equity markets were closed on Monday for Ganesh Chaturthi.
Continuing its firefight against the deepening economic slowdown, the government on Friday unveiled a mega plan to merge 10 public sector banks into four with a view to create fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.
The mergers announced on Friday, together with two set consolidations done last year, will reduce the number of public sector banks to 12 from 27 in 2017.
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Oriental Bank of Commerce and United Bank will merge with Punjab National Bank to create the nation’s second-largest lender behind State Bank of India. Also, Syndicate Bank will merge with Canara Bank while Andhra Bank and Corporation Bank would subsume into Union Bank of India. Allahabad Bank will be amalgamated with Indian Bank.
According to Emkay Global, the merger of Canara and Syndicate could be relatively less disruptive in terms of integration. Being a strong mid-sized bank, Indian Bank was always susceptible to a merger, but the merger with Allahabad Bank instead of IOB will be less painful, it said.
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Punjab National Bank has been inherently weak and the merger could further aggravate and prolong the pain. Being a perennially capital-starved bank, Union Bank should benefit on the capital front due to the merger and has also been graced by the government with healthy capital infusion, but the merger will still be painful as a result of the geographic and cultural diversity of the merging entities, it said.
