PSB stocks plunge up to 9.3 per cent post merger announcement

New Delhi: Public sector bank stocks, led by Corporation Bank and Punjab National Bank, tumbled up to 9.3 per cent on Tuesday after the government announced the merger of 10 state-run lenders into four.

Shares of Corporation Bank tanked 9.28 per cent to Rs 17.10, Punjab National Bank plunged 8.54 per cent to Rs 59.40, Canara Bank dropped 7.54 per cent to its one-year low of Rs 203.90. Oriental Bank of Commerce cracked 7.34 per cent to Rs 68.10, Union Bank of India 6.79 per cent to its 52-week low of Rs 54.90, Allahabad Bank declined by 2.83 per cent to Rs 34.30 and United Bank 0.28 per cent to Rs 10.39 on the BSE.

However, Andhra Bank rose 5.31 per cent to Rs 20.80 and Syndicate Bank gained 3.55 per cent to Rs 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 creating 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.

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.

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