Allahabad Bank shares dropped as much as 2.8% in early trade on Tuesday, i.e. 3 September, after finance minister Nirmala Sitharaman announced the lender’s amalgamation with Indian Bank under the government’s mega-merger plan for public sector banks (PSU banks).
At 9:41 am, shares of Allahabad Bank were trading down 2% at Rs 34.60, after hitting an intra-day low of Rs 34.30. Meanwhile, shares of Indian Bank were down over 5%. The merger of Allahabad Bank with Chennai-based Indian Bank will create India’s seventh-largest public sector bank with Rs 8.08 lakh crore business and strong branch networks in the south, north and east of the country. Moreover, since both banks reportedly share a common core banking software (CBS), BaNCS, integration and realisation of gains would be quicker.
Finance secretary Rajeev Kumar said on Twitter: “Consolidated Indian and Allahabad Banks to be 7th largest #PSB with Rs 8.08 lakh cr. business. Strong scale benefits to both with business doubling. High CASA and lending capacity combined in consolidated bank.” CASA refers to current and savings account ratio.
Sitharaman on 30 August unveiled a merger plan of 10 PSU banks into four to create fewer and stronger global-sized lenders amid a slowdown in economic activity. The four new set of banks would be created after merging the following banks -- 1) Punjab National Bank, Oriental Bank of Commerce and United Bank of India; 2) Canara Bank and Syndicate Bank 3) Union Bank of India, Andhra Bank and Corporation Bank; and 4) Indian Bank and Allahabad Bank.
Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank will continue as separate entities due to their strong regional focus, while Bank of India and Central Bank of India will also operate separately.
While the move is aimed at making Indian banks globally competitive, analysts raised questions over merging the weak banks with strong ones at a time when asset quality concerns linger.