Suresh Ganapathy, banking analyst of Macquarie Capital Securities, advised to avoid investing in PSU banks saying that the banks are "now going to be punished by the government for performance".
"What is likely to happen is that there are 11 Prompt Corrective Action (PCA) banks, out of which one of the PCA banks, Dena Bank has been given to Bank of Baroda and there are 10 others left. What is the future for them? They will definitely be given to some of the larger public sector undertaking (PSU) banks. However, the government also doesn’t have a choice, so over the next five years, consolidation is inevitable. You will have to bring down the number of public sector banks down to 5-6,” he said.
The government on Monday proposed to merge Bank of Baroda (BoB), Vijaya Bank and Dena Bank.
“The entire management bandwidth goes only in consolidation. So you are just now trying to come out of the peak of the non-performing loans (NPL) cycle and then next six months to one year goes only in consolidation. We have seen that even in State Bank of India (SBI) subsidiaries which were supposed to be more homogeneous than any of the other public sector banks," he added.
“I don’t think the government will go against what the market price is for these entities. So the critical point is what is going to be the record date because today share prices have all gone haywire, Dena Bank is up massively, BoB is down 10 percent. So if they are going to do at today’s market price then it is going to be pretty bad mainly because BoB shareholders are going to get very raw deals," Ganapathy further mentioned.