Andhra Bank Shares Jump by 3.8% After Announcement of PSU Bank Mergers

Andhra Bank shares jumped as much as 3.8% in early trade on Tuesday, i.e. September 3, after finance minister Nirmala Sitharaman announced that the lender, along with Corporation Bank, will be amalgamated with the Union Bank of India under the government’s mega merger plan for public sector banks (PSU banks).

At 9:36 am, shares of Andhra Bank were trading up 2.5% at Rs 20.20, after hitting an intra-day high of Rs 20.45. Meanwhile, shares of Union Bank of India were down 3.5%, while those of Corporation Bank slipped 0.2%.

The combination of Andhra Bank and Corporation Bank with Union Bank of India will create India's fifth-largest public sector bank with Rs 14.59 lakh crore business and 9,609 branches. Moreover, since all three banks share a common core banking software (CBS), Finacle, integration and realisation of gains would be quicker.

In a BSE filing, Andhra Bank said it has received a communication from the finance ministry to the effect that the alternative mechanism, in consultation with the Reserve Bank of India, has decided that Union Bank of lndia, Andhra Bank and Corporation Bank may consider the amalgamation of Andhra Bank and Corporation Bank into Union Bank of India.

“Accordingly, a meeting of the Board of Directors to consider the amalgamation will be convened by the bank in due course,” it said. Sitharaman on 30 August unveiled a merger plan of 10 PSU banks into four to create fewer and stronger global-sized lenders amid a slowdown in economic activity.

The four new set of banks would be created after merging the following banks -- 1) Punjab National Bank, Oriental Bank of Commerce and United Bank of India; 2) Canara Bank and Syndicate Bank 3) Union Bank of India, Andhra Bank and Corporation Bank; and 4) Indian Bank and Allahabad Bank.

Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank will continue as separate entities due to their strong regional focus, while Bank of India and Central Bank of India will also operate separately.

While the move is aimed at making Indian banks globally competitive, analysts raised questions over merging the weak banks with strong ones at a time when asset quality concerns linger.