Mumbai: Riding high on recapitalisation plans, government-owned banks rallied massively on Wednesday. The NSE PSU Bank index soared 24% intraday led by gains in State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda, Bank of India and Union Bank, among others.
On Tuesday evening, the government announced Rs2.11 trillion for PSU bank recapitalisation to revive investments as well as growth. Out of the total commitment, Rs1.35 trillion will come from the sale of so-called recapitalisation bonds. The remaining Rs76,000 crore will be through budgetary allocation and fundraising from the markets.
India’s biggest lender SBI surged nearly 26%, its biggest single-day jump since January 1994. PNB rose 36%, Bank of Baroda was up 26%, while Bank of India rallied 21% and Union Bank of India jumped 21%. Other big gainers include Corporation Bank (up 20%), Canara Bank (20%), Oriental Bank of Commerce (19%), Uco Bank (16%), Indian Overseas Bank (16%), IDBI Bank (16%), Andhra Bank (15%), Central Bank of India (14%) and Allahabad Bank (13%).
High provisions, subdued loan growth and lower treasury gains of PSU banks were hurting state-owned banks and the new flush of funds is expected to boost growth. Edelweiss Securities Ltd said that the strong booster entails lower systemic risk as it will ease PSU banks’ capital deficiency; while it could encourage lending, capital will still be necessary largely to address asset quality stress.
“While the government’s capital allocation formula will be key, we anticipate leading banks to be in a better bargaining position to command higher capital to meet Basel requirements and participate in growth. On the flip side, it could potentially entail higher dilution risk,” the brokerage firm said in a note on 24 October.
However, shares of private banks, except ICICI Bank and Axis Bank, and other non-banking financial companies (NBFCs) are under pressure. ICICI Bank shares jumped over 10%, while Axis Bank shares were up 1% in morning trade. IndusInd Bank, Yes Bank, HDFC Bank, Kotak Mahindra Bank, Federal Bank, IDFC Bank, RBL Bank and South Indian Bank were trading either flat or fell.
In the year so far, NSE PSU Bank index has surged 28%, while NSE Private Bank index is up 35%. Benchmark indices Sensex and Nifty jumped 20-21% in the same period.