PSU banks Canara Bank, OBC, Indian Bank extended decline on Wednesday morning, after the Narendra Modi-led government announced a mega consolidation drive in the space.
PSU banks Canara Bank, OBC, Indian Bank extended decline on Wednesday morning, after the Narendra Modi-led government announced a mega consolidation drive in the space. Canara Bank (2% down), OBC (0.6% down), Indian Bank (0.9% down) were the biggest losers in the Nifty PSU index. Yesterday, PSU bank stocks including Indian Bank, PNB, OBC, Canara Bank, Union Bank plunged up to 10%, even as the PSU Bank Index closed nearly 4% lower. The plunge in the shares comes after global brokerages see short-term plain in the PSU bank space. Interestingly, while the merger drive reduces the total number of state-owned banks to 12 from 27 earlier, the time needed for integration and challenges related to staff, branch and process overlaps are expected to be the main immediate risks, say analysts.
Global brokerage firm CLSA said that near-term growth is likely to suffer as banks focus on completing mergers, as per the timeline. “We have observed that historically, when state-owned banks merge, smaller banks’ loan-book growth slows sharply, as the primary focus of management shifts to integration,” UBS noted. According to Reliance Securities it will take a long time for the better economics of scale to materialize and the space will face initial profitability pain, even though the long-term impact may be positive. “Merger ratio would be key to watch going forward which is yet to be announced and therefore investors are moving out of the PSU Bank counters,” the firm noted.
Earlier, Finance Minister Nirmala Sitharaman said that banks incuding PNB, OBC, United Bank will merge to create India’s second largest government-run bank. A total of 10 PSU banks have been merged into 4 anchor banks. Union Bank, Andhra Bank and Corporation Bank will be merged to create India’s 5th largest PSU bank entity, while Canara Bank will be merged with Syndicate Bank to form 4th largest government bank. Finally, Indian Bank will be merged with Allahabad Bank to form the 7th largest PSU bank in India. Terming these as “Nextgen PSBs,” the government said that the merger is being done to achieve national presence and global reach.