PSU bank stocks surged as much as 3% during Monday’s trading session following news that the government is preparing a new plan to merge certain public sector banks and privatise smaller lenders.
Shares of Bank of Baroda, UCO Bank, Punjab & Sind Bank, Canara Bank, Central Bank, and others saw an increase of 1% to 3% in trade today.
The Indian government is formulating a strategy to combine Union Bank of India and Bank of India, both located in Mumbai, as part of its recent banking reform efforts, according to Mint, which cited sources familiar with the situation. If accomplished, this merger would result in the formation of the second-largest state-owned bank in the country, following the State Bank of India (SBI), the report noted.
This initiative is part of the government’s goal to enhance the banks and optimise overlapping functions within the banking industry over the coming years, as per the report.
Additionally, the Finance Ministry is exploring the possibility of merging Indian Overseas Bank and Indian Bank, based in Chennai, as indicated by sources, according to Mint. Furthermore, Punjab & Sind Bank (PSB) and Bank of Maharashtra, which hold fewer assets compared to other major public sector banks, are being considered for privatisation in the future, the report stated.
On October 15, Moneycontrol reported exclusively that the Indian banking sector is on the verge of another round of consolidation among public sector banks, with the government planning a significant merger that may bring together smaller banks with larger ones.
The objective is to refine the public sector banking framework, aiming for a smaller number of more robust institutions capable of facilitating the next stage of credit growth and reforms in the financial sector, according to a source.
Indian Overseas Bank (IOB), Central Bank of India, Bank of India (BOI), and Bank of Maharashtra (BOM) might be integrated with larger banks like Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI), as per government insiders.
From 2017 to 2020, the government combined 10 public sector banks into four larger entities, reducing the number of state-owned banks from 27 in 2017 to 12.
Technical views
According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, the Nifty PSU Bank index remains in strong momentum and has notably outperformed over the last couple of months.
“The rally has been supported by broad-based buying, and given the positive price structure and sustained momentum, the uptrend is likely to continue in the near term. Within this space, we particularly like Canara Bank, Bank of Baroda, and Bank of India,” said Bhosale.
Commenting on specific stocks, the Angel One analyst said: Canara Bank is breaking out of a multi-year consolidation and may extend its upmove towards ₹160. Bank of Baroda is also emerging from a long-term consolidation zone and could rally towards ₹290. Bank of India, although still trading well below its all-time high, is showing early signs of a bottoming formation and could see a catch-up move with potential to head towards ₹160.
Ruchit Jain, VP – Equity Technical Research, Motilal Oswal Financial Services Ltd, added that Bank of India had seen a sharp rally along with other PSU Banks in the last 2 months. “While the trend remains positive, the sharp upmove has led to overbought momentum readings on short-term charts. Hence, traders can keep a buy on dip approach for fresh buying in the counter. The 20 DEMA support is placed around ₹133,” noted the expert.
According to Anshul Jain, Head of Research at Lakshmishree, post a 44-week cup and handle breakout at ₹250, Bank of Baroda has surged to fresh all-time highs with a bullish earnings gap, adding strong momentum to the move.
“The breakout has been supported by positive sentiment and volume expansion, indicating sustained institutional interest. A close below ₹270 would mark the first sign of reversal, though that currently looks unlikely given the strength in structure. As long as the stock holds above this zone, momentum is expected to continue, with potential upside toward ₹315 levels in the near term,” Jain noted.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
