Expectations for more merger and acquisitions (M&As) in the banking industry after Kotak Mahindra Bank's $2.4 billion takeover deal with ING Vysya boosted smaller lenders on Friday. Thursday's record deal has raised speculation over likely mergers in the sector, say traders.
(Read: Top 10 facts about Kotak-ING Vysya merger)
Rising banking shares also fuelled gains in broader markets and the 50-share Nifty, which has as many as 10 banking and financial companies, rose to a record high.
Lenders that markets see as potential acquisition candidates rose sharply today. Karnataka Bank jumped 2.3 per cent, while Karur Vysya Bank advanced 2 per cent.
City Union Bank gained 2 per cent, Lakshmi Vilas Bank rose 1.4 per cent and Dhanlaxmi Bank advanced 4.2 per cent. South Indian Bank traded 3.4 per cent higher.
Those markets see as potential suitors also edged higher. ICICI Bank and Axis Bank were up 0.2 per cent each.
Kotak-ING deal may be the start of long-awaited consolidation in India's crowded banking sector, analysts say. The country has 40 publicly traded banks, 24 of them majority owned by the government. The state banks account for over 70 per cent of a total of $1 trillion advances, leaving dozens of small lenders in their wake with tiny market shares.
Analysts expect the sector to begin coalescing around a few major players after the country's central bank in April granted licences to set up two new banks. Deals, though, have been rare in a banking industry hampered by restrictive regulation, reluctant investors and strong unions.
(With inputs from Reuters)
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