Modi Image Credit: Gulf News Archives

Investors knocked down shares of of India’s large state-run banks after the government unveiled its plan to merge several of the lenders, amid concerns that the integration process might delay its bad-loan clean up and slow lending approvals.

The four key large lenders at the center of the merged groups - Punjab National Bank, Canara Bank, Union Bank of India and Indian Bank - fell on Tuesday as investors fretted over the impact of absorbing their weaker peers. The mergers were announced after the market shut on Friday and Monday was a public holiday.

While Prime Minister Narendra Modi’s government is keen for banks to give more loans to boost an economy growing at its slowest in six years, the timing of the mergers means that management attention may shift to realigning resources and processes. That could leave them little time to focus on their key immediate task of cleaning up the worst stressed-asset ratio among major economies.

Punjab National Bank was down 4.5% as of 9:14 a.m. in Mumbai on Tuesday, Canara Bank 3%, Union Bank of India 2.4%, Indian Bank 5.5%, Oriental Bank of Commerce 6.6%. However some of the weaker lenders shares jumped - United Bank of India rose 5.3%, Syndicate Bank 1.2%, Andhra Bank 0.5%, Corporation Bank 1.6%.

The benchmark Sensex index fell 0.8%. The 10-member Bankex index fell 1.6%.