Central Bank, UCO Bank, Punjab & Sind Bank, other PSU banks' stocks rally up to 4% amid reports of merger

PSU Banks merger news: Shares of PSU banks rose by up to 4% during Monday's trading session following news that the finance ministry is drafting a strategy for the next round of mergers among public sector banks, with an announcement expected in April or May. A report from Informist indicated that these mergers will occur in 2-3 phases rather than all at once.Shares of Central Bank, UCO Bank, Punjab & Sind Bank, Indian Overseas Bank, Bank of Maharashtra, other PSU banks rose up to 4%.As per the Informist report, there are currently 12 PSU banks, and the goal is to consolidate to a maximum of 6-7 nationalized banks that are larger in scope than their present structure. The government might initially merge 1-2 smaller banks before integrating them with SBI or PNB, or possibly merge them directly with SBI or PNB.According to reports, the government's strategy to merge PSU banks into a smaller number of larger entities is also motivated by the enhanced profitability observed in public sector banks over the past three years. Previously reliant on capital support from the government, state-owned banks are now in a more stable position.As per reports, the government allocated over ₹3 trillion to public sector banks between FY17 and FY22. The most recent capital infusion occurred in FY22, when the government supplied INR 46 billion to Punjab & Sind Bank.In recent years, the Narendra Modi administration has implemented significant mergers among PSU banks. Shortly after commencing its second term, the government declared a monumental merger of ten public sector banks. As of April 1, 2020, Oriental Bank of Commerce and United Bank of India merged into PNB, Andhra Bank and Corporation Bank consolidated into Union Bank of India, Syndicate Bank joined with Canara Bank, and Allahabad Bank merged with Indian Bank. This resulted in a total of just 12 public sector banks, reduced from 20, according to reports.Before this, in 2017, five associate banks of SBI—State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala—were absorbed into State Bank of India, along with Bharatiya Mahila Bank. Prior to that, State Bank of Indore merged with SBI in 2010 and State Bank of Saurashtra was integrated into SBI in 2008.The smaller public sector banks that are likely candidates for mergers with larger PSU banks include Bank of Baroda, Bank of India, Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, UCO Bank, and Punjab & Sind Bank.Technical views(more to come)