(Bloomberg) -- Investors knocked down shares of India's large state-run banks after the government unveiled its plan to merge several of the lenders, amid concerns that the integration process might delay a bad-loan clean up and slow lending approvals.
The four key large lenders at the center of the merged groups -- Punjab National Bank, Canara Bank, Union Bank of India and Indian Bank -- fell on Tuesday as investors fretted over the impact of absorbing their weaker peers. The mergers were announced after the market shut on Friday and Monday was a public holiday.
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While Prime Minister Narendra Modi's government is keen for banks to give more loans to boost an economy growing at its slowest in six years, the timing of the mergers means that management attention may shift to realigning resources and processes. That could leave them little time to focus on their key immediate task of cleaning up the worst stressed-asset ratio among major economies.
Bank of Baroda, which earlier absorbed Dena Bank and Vijaya Bank, has lost 40% of its market value since the merger was announced a year ago.
The Nifty PSU Bank Index plunged about 5% in Mumbai on Tuesday, the biggest drop in a month and more than the 2.1% decline in the benchmark gauge.
Punjab National Bank fell 8.5%, Canara Bank 10.1%, Union Bank of India 9%, Indian Bank 11.2%, Oriental Bank of Commerce 8.4%. However some of the weaker lenders shares jumped -- United Bank of India rose 1%, Andhra Bank 1%.
--With assistance from Ravil Shirodkar.
To contact the reporter on this story: Suvashree Ghosh in Mumbai at sghosh186@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Jeanette Rodrigues
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