Banking stocks, which have been among the laggards in the recent past due to concerns related to bad debts, are expected to witness a re-rating on the bourses on account of the capitalisation plan announced by the government on Tuesday.
Banking analysts are unanimous in their view that the capital infusion would lead to a positive re-rating of the sector, especially for public sector entities that have been finding it difficult to meet the capital requirements for provisioning of bad debts estimated to be more than ₹9 trillion.
“Recapitalisation is a big move and will definitely lead to a re-rating of the banking sector as the amount announced by the government will take care of the requirement of the sector with troubled assets,” said Siddharth Purohit, research analyst, SMC Institutional Equities. “Banks were not having enough capital for provisioning and the immediate need will be addressed with this move. There is definitely a case for re-rating of public sector banks.”
Bank index loses 2%
In the last three months, while the benchmark Sensex has gained about 1.11%, the BSE Bankex has lost more than 2%. The benchmark Sensex comprises banking majors such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank.
“This is definitely a positive for public sector lenders as it will give them access to the much-needed Tier 1 capital funds,” according to Saurabh Mukherjea, CEO, Ambit Capital. “This will lead to a re-rating of the banking sector especially for the public sector lenders.”