Nifty PSU Bank index surges 7%; PNB, Canara Bank, Indian Bk rally up to 19%

Shares of public sector undertaking (PSU) banks were in focus at the bourses on Tuesday, with the Nifty PSU Bank index gaining over 7 per cent, on the back of strong gain in Canara Bank, Punjab National Bank (PNB), and Indian Bank, which rallied up to 19 per cent on the National Stock Exchange (NSE).

Bank of India, Bank of Baroda, Union Bank of India, and Central Bank of India were up in the range of 5 per cent to 10 per cent, while UCO Bank, Indian Overseas Bank, and State Bank of India (SBI) gained between 1 per cent and 6 per cent on the NSE.

The Nifty PSU Bank index, the top gainer among sectoral indices, ended over 7 per cent higher at 1,857.55 levels, as compared to 0.3 per cent gain in the Nifty50 index. Since November, the Nifty PSU Bank index has outperformed the market by surging over 44 per cent, against a 15 per cent rise in the Nifty50 index. The PSU Bank index traded at its highest level since March 6, 2020.

Shares of Canara Bank rallied nearly 19 per cent to Rs 139.55 after the bank on Monday said it has launched qualified institutional placement (QIP) to raise funds from institutional investors. The lender set the floor price for its QIP to raise up to Rs 2,000 crore.

PNB on Saturday said it will hold a roadshow for the proposed Rs 7,000 crore QIP issue. The bank will be participating again in the non-deal roadshow and meeting prospective investors on December 7-8, 2020, PNB said in a regulatory filing.

In the past month, the stock has gained 40 per cent, against a 9 per cent rise in the Nfity50 index. On November 20, ICRA Ratings had upgraded the ratings of Bonds issued by the Bank and reaffirmed the rating of Certificate of Deposits.

The rating upgrade is based on the recent improvement in solvency profile and capital position, which is likely to sustain on the back of lower-than-previous estimated Covid-19 induced asset quality stress for the bank. Accordingly, the credit provisions and consequently the capital requirements for bank are estimated be manageable for the bank, ICRA said in rating rationale.

Since the last rating update, the Government of India (GoI) has also announced a capital infusion of Rs 20,000 crore for public sector banks (PSBs) for FY2021, a part of which could also be allocated to PNB. In addition, the ability of PSBs (including PNB) to raise Additional Tier I (AT-I) bonds has also improved after they have proposed to set-off their accumulated losses against their share premium account, which could improve the bank’s ability to improve its Tier I capital position, it said.

However, on Thursday, December 3, Fitch Rating affirmed PNB's long-term issuer default rating (IDR) at 'BBB-', with a negative outlook. Fitch believes a speedy economic recovery is critical for the sector to rebound meaningfully, without which we expect a moderately worse landscape for the Indian banking sector in 2021 on the back of weak prospects for new business and revenue generation, it said.