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Public sector bank stocks, led by Canara Bank, Union Bank and Punjab National Bank, tumbled up to 10.6 per cent on Tuesday after the government announced the merger of 10 state-run lenders into four.
Shares of Canara Bank dropped 10.59 per cent, Union Bank of India fell 9.08 per cent, Punjab National Bank plunged 8.55 per cent, Oriental Bank of Commerce fell 8.10 per cent and Allahabad Bank dropped 5.67 per cent on the BSE.
Corporation Bank fell 3.98 per cent, while Syndicate Bank dropped 1.08 per cent.
However, Andhra Bank gained 0.51 per cent and United Bank rose by 0.38 per cent.
Equity markets were closed on Monday for 'Ganesh Chaturthi'.
Continuing its firefight against the deepening economic slowdown, the government on Friday unveiled a mega plan to merge 10 public sector banks into four with a view to creating fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.
The mergers announced on Friday, together with two set consolidations done last year, will reduce the number of public sector banks to 12 from 27 in 2017.
Oriental Bank of Commerce and United Bank will merge with Punjab National Bank to create the nation's second-largest lender behind State Bank of India.
Also, Syndicate Bank will merge with Canara Bank, while Andhra Bank and Corporation Bank would subsume into Union Bank of India, and Allahabad Bank will be amalgamated with Indian Bank.
According to a report by Centrum Broking Research, these mergers will face near-term challenges such as integration of processes, human resources, branch network rationalisation, and consolidation of financials.
The logic behind the selection of banks in the merger plan is synergies in geographical presence, technology platforms, and benefits of scale, with minimal disruption to customers, the report said.
"In our opinion, consolidation has generally been near-term detrimental to the stronger (acquiring) banks and an extended integration period remains a challenge for these entities. We believe the proposed mergers will face near-term challenges by way of integration of processes, human resources, consolidation of financials, and branch network rationalisation," it noted.
