Bank Merger Spooks Markets as PSB Stocks Lose Up To 12%

The fresh mergers, along with 2 set of consolidations done in 2018, will reduce the number of PSBs to 12.

After the merger with five of its associate banks, State Bank of India will be among 50 biggest banks in the world with assets of approximately Rs 40 lakh crore. 

(Photo: iStock)

The equity markets do not seem to be warming up to the government’s announcement of multiple mergers of public sector banks (PSBs) as scrips of government-run banks witnessed a meltdown on Tuesday, 3 September.

On Tuesday, the first day of trading since the mergers were announced, the Nifty PSU Bank sub-index lost as much as 5 percent. The markets were closed on Monday, on occasion of Ganesh Chaturthi.

The individual bank stocks which are to be merged, except for United Bank and Andhra Bank, faced major losses on Tuesday. Indian Bank and Union Bank of India saw the sharpest losses.

Sensex lost 769.88 points to close at 36,562.91, while Nifty finished at 10,797.90, down 225.35 points.

Here is a list of percentage change in stock prices on BSE on Tuesday of the banks which are to undergo merger:

• Syndicate Bank: -2.16%
• Indian Bank: -12.26%
• Allahabad Bank: -5.67%
• Union Bank: -9.08%
• Andhra Bank: +0.51%
• Corporation Bank: -3.98%
• Punjab National Bank: -8.55%
• Oriental Bank of Commerce: -8.10%
• United Bank: +0.77%
• Canara Bank: -3.46%

Even other major PSBs, outside of the list, finished with losses. State Bank of India, Central Bank of India and Bank of India lost 1.95 percent, 4.56 percent and 4.12 percent, respectively.

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, and 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 merger, but the merger with Allahabad Bank instead of IOB will be less painful,” news agency PTI quoted Emkay Global as saying.

However, it could be challenging due to cultural and geographical diversity with Allahabad Bank and its relatively weak asset quality, PTI reported.

PNB 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 a healthy capital infusion, but that being said the merger will still be painful as a result of the geographic and cultural diversity of the merging entities, the news agency said.

(With inputs from PTI)