Many smaller banks are looking ripe as acquisition targets. Kripa Mahalingam & Indira Vergis identifies some candidates.
Banking stocks, especially small-cap stocks, have been experiencing a dream run at the bourses, with most of them notching up handsome gains in the past few months. Even usually sleepy public sector bank stocks roared ahead.
The bullishness about these stocks stems from quite a few reasons. Boosted by the healthy rise in income from treasury operations, most banks saw their bottomlines grow by an impressive margin last fiscal. For instance, Vysya bank posted a 78 per cent increase in profit during last fiscal. This rise in other income helped many public sector banks wipe the red ink off their balance sheets.
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Another factor that sparked investor interest in small-cap banking stocks,especially those of private sector banks, is that fact that some of them are being eyed as potential acquisition targets. With the norms on acquisition easing, both large private sector banks such as HDFC Bank and foreign banks like ABN Amro, Citibank and HSBC are on the prowl to acquire one of the better-managed smaller banks to improve their reach.
Says Abhay Aima, market analyst: