The Nifty Bank index slipped more than 1 percent on Tuesday after Finance Minister Nirmala Sitharaman announced the merger of PSU banks last week. The merger of 10 state-owned banks into four will strengthen the debt-laden sector and ensure stronger balance sheets, the minister said in the announcement made after market hours on Friday.
At 09:18 am, the Nifty Bank index was down 370.10 points, or 1.35 percent, at 27,065.15. Top laggards on the index were Federal Bank down 2.17 percent, Bank of Baroda declining 1.89 percent while State Bank of India lost 1.88 percent.
Other banking stocks also followed suit. Shares of Punjab National Bank (PNB) fell 7.5 percent on Tuesday. The lender on Saturday said its board of directors will meet on September 5 to consider its merger with Oriental Bank of Commerce and United Bank of India.
Shares of Indian Bank, Oriental Bank of Commerce, Canara Bank, Union Bank of India, and Allahabad Bank were down between 1.5-4.5 percent.
Indian financial markets were shut on Monday on account of a public holiday.
Under the merger plan, 10 PSU banks will be amalgamated into four entities. The merger will reduce the total number of state-owned banks to 12 from 27 in 2017.
Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will be merged into Punjab National Bank (PNB), making it the second-largest PSU bank after SBI.
Syndicate Bank with Canara Bank while Andhra Bank and Corporation Bank will be merged with Union Bank of India. Meanwhile, Allahabad Bank will merge with Indian Bank. This will make it the seventh-largest state-owned bank in India.
According to Morgan Stanley, the PSU bank consolidation is a good long-term move, but could weigh on the near-term growth. The brokerage remained 'underweight' on Punjab National Bank and Canara Bank post-merger announcement and reduced earnings/target across PSU banks.
Citi also believes that PSU Bank consolidation should strengthen the system. It also added that the consolidation will make capital and talent management easier.
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First Published: IST