Bank merger will slow down loan growth, rivals likely to benefit: Analysts

Current Affairs

Equity analysts predict that India’s move to merge several of its state banks will slow their loan growth, and many brokers advise buying shares of the lenders’ rivals who stand to benefit from the uncertainty.
While the mergers will reduce the number of state-owned banks to 12 from 27 and are aimed at creating bigger and healthier lenders, the time needed for integration and challenges related to staff, branch and process overlaps are expected to be the main immediate risks.
Prime Minister Narendra Modi’s government late Friday surprised analysts by announcing a series of mergers that will create four new lenders that will hold business worth Rs 55.8 trillion ($781 billion), or about 56 per cent of the Indian banking industry. The announcement came minutes before data showed economic growth in Asia’s third-biggest economy slumped to a six-year low of 5 per cent, below the weakest estimate of 39 economists polled by Bloomberg.
Futures contracts on India’s Nifty 50 Index dropped 1 per cent in Singapore on Monday, when local markets were shut, indicating the broader stock market may decline when they open for trade on Tuesday.
Here is what some of the analysts are saying:
Caution on Merger Candidates

 Mergers will keep state-run banks “busy in the integration process for a prolonged period and thus help private banks further consolidate their business market share,” Emkay Global analysts Anand Dama and Rahul Malani wrote in a note dated Sept. 3. Emkay downgrades Indian Bank to hold from buy, and maintains sell on Punjab National Bank, Canara Bank and Union Bank, citing merger overhang...Read More