Bank of India, Union Bank other PSU bank stocks fall after govt clarifies on merger speculation

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PSU bank shares, which rallied the previous session, remained under pressure on December 18 after a government document doing rounds on social media triggered speculation of possible mergers between Union Bank and UCO Bank, and Bank of India and Bank of Maharashtra.

Earlier on December 15, the Nifty PSU bank index surged in the final two hours of trading to end 2.4 percent higher as the document was widely shared. Benchmark Bank Nifty closed with 0.9 percent gains.

The document shared on social media said a parliamentary committee would hold discussions with four PSU banks in the first week of January under banking laws, which govern mergers and acquisitions, among other things. Soon after, the document was “revised” with no mention of the word merger.

"The earlier parliamentary committee meeting letter has been misconstrued, prompting the issuance of a new letter. It's all speculation, and there is no such discussion underway," a UCO Bank top official told Moneycontrol on condition of anonymity.

Amid the merger buzz, Bank of Maharashtra shares on December 18 fell 1.3 percent to Rs 47 on the National Stock Exchange, Union Bank of India tanked nearly 4 percent to Rs 123 per share, Bank of India slipped 0.8 percent to Rs 111 while UCO Bank was trading mildly in green at Rs 41 per share.

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The PSU Bank index has rallied over 13 percent in the last month, outperforming the benchmark Nifty which has risen 9 percent, and Nifty Bank that has gained 10.5 percent.

In 2019, the government announced that 27 public sector banks, existing in 2017, will be reduced to more than half following multiple mergers. These next-generation banks were imperative for India to become a $5-trillion economy, finance minister Nirmala Sitharaman has said.

Vijaya Bank and Dena Bank merged with Bank of Baroda with effect from April 1, 2019. The last round of mega consolidation, which took effect on April 1, 2020, saw 10 PSBs consolidate into four.

Oriental Bank of Commerce and United Bank of India were merged with Punjab National Bank; Syndicate Bank merged with Canara Bank; Andhra Bank and Corporation Bank merged with UBI; and Allahabad Bank with Indian Bank.

Also Read | Two PSU bank mergers on cards? Govt issues clarification after doc fuels speculation

UCO Bank, Bank of Maharashtra and Bank of India were left out of the merger plan.

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