Public sector banks gain on Rs 70,000-crore capital boost from govt

Shares of public sector banks (PSU) rallied by up to 11 per cent on the National Stock Exchange (NSE) in Monday's early morning trade after the government announced that it will infuse Rs 70,000 crore upfront into state-owned banks.

State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Oriental Bank of Commerce, Central Bank of India, Allahabad Bank, Syndicate Bank, Union Bank of India, and Canara Bank were all up 5 per cent to 12 per cent on the NSE in intra-day trade.

Nifty PSU Bank index surged 6 per cent to 2,558 in early morning trade. At 09:21 am, the index was the largest gainer among the sectoral indices, up 4 per cent, as compared to 0.7 per cent rise in the benchmark Nifty50 index.

Finance Minister Nirmala Sitharaman on Friday, after market hours, briefed the media about unwinding and tweaking of measures announced previously in order to address growth challenges. Moreover, she assured that more measures are due to be announced in the next two weeks, which will hopefully cheer the market sentiment.

The decision to reverse the surcharge on long/short term capital gains, deferral of registration fees, frontloaded recap of PSU Banks and BS IV clarifications among others will be positive, IIFL Securities said in a client note.

The release of Rs 70,000 crore upfront for the PSU banks and other major announcements for easing crisis in non-banking finance companies (NBFCs) will help in credit offtake. Similarly, allocating Rs 30,000 crore to National Housing Bank (NHB) will help affordable housing and realty sector. The decision to pass on rate cuts to the borrowers will be a big relief and will help in reducing cost of capital besides boosting credit growth & consumption, said Rajiv Singh, CEO, Karvy Stock Broking.

The move to frontload Rs 70,000 crore into the banking system in the form of recapitalisation will help reignite animal spirits, especially in semi-urban and the rural parts, where public sector banks’ contribution is 80 per cent, said Syndicate Bank Managing Director and Chief Executive Officer Mrutyunjay Mahapatra said.

The Nifty PSU Bank index closed Friday's session at a 52-week low of 2,318 levels, after tanking 29 per cent from pre-budget level of 3,268 on July 4. In comparison, the benchmark Nifty 50 index was down 9 per cent during the same period.