Nifty PSU Bank index zooms 21% on government's Rs 2.11-lakh crore recapitalisation plan

Shares of public sector undertaking (PSU) bank are on a roll with the Nifty PSU Bank index recorded its sharpest intra-day gain of 21%, after the government cleared Rs 2.11 lakh crore bank recapitalisation plan.

Nifty PSU Bank index has zoomed 21.5% to 3,757 points in intra-day trade on the National Stock Exchange (NSE) on Wednesday. At 09:23 AM; Nifty PSU Bank index was up 20% at 3,712 as compared to 2.4% rise in the Nifty Bank index. Nifty Private Bank and the benchmark Nifty 50 index were up 0.7% each.

Punjab National Bank (PNB) soared as much as 36% to Rs 187, also its 52-week high on the NSE in intra-day trade. State Bank of India (SBI), Bank of India, Bank of Baroda, Canara Bank and Union Bank of India were up between 22% and 27%.

The government on Tuesday unveiled a Rs 2.11-lakh crore support for public sector banks (PSBs), struggling with mounting bad loans, in order to spur “genuine” infrastructure lending for upcoming mega projects.

Also Read: PSU bank recapitalisation: Analysts concerned about budgetary support

Most analysts have given a thumbs-up to the proposal that will inject the much needed liquidity in to the cash-starved PSU banks.

Analysts at Nomura, for instance, are positively surprised by the quantum of the recapitalisation planned by the government and matches their estimates of capital requirements for PSU banks for both NPA provisioning and some growth. 

"Assuming the entire infusion is equity in nature (we are still unclear whether this is debt / equity), there would be significant dilution for minority investors, but given that current prices are higher than FY17 adjusted book values for most PSU banks, this recap package should drive a re-rating in PSU banks. Among our coverage stocks, we expect the highest positive impact on PNB (Buy rated)," writes Adarsh Parasrampuria of Nomura in a co-authored report with Amit Nanavati and Riddhi Jain.

A sizeable proportion of this capital mobilisation is expected to happen in the current financial year (FY18) even as the entire recapitalisation exercise is expected to be completed over two years (FY18 and FY19), reports suggest. 

"While the specifics around this exercise are likely to be rolled out over the next few weeks, we expect an immediate near-term trading rally in corporate lenders (especially PSU banks),” analysts at SBICAP Securities said in a note.

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“The move is a positive from a macro growth perspective as it address the important issue of bank recapitalisation, with fresh capital banks can now take more aggressive haircuts and thus will help to expedite the process of resolution of stressed assets, and will incentivise fresh credit disbursement,” suggest Antique Stock Broking.

Nitin Aggarwal, an analyst tracking the sector with Motilal Oswal says that the banks that are short on capital and have higher quantum of bad loans stand to benefit more given the development. He reiterates a Buy rating on PNB, SBI and BOB.

BANK LATEST PREV CLOSE GAIN(%)
PUNJAB NATL.BANK 179.05 138.10 29.7
BANK OF BARODA 175.20 143.15 22.4
BANK OF INDIA 168.25 140.45 19.8
UNION BANK (I) 157.00 131.35 19.5
CANARA BANK 378.80 317.20 19.4
ST BK OF INDIA 303.85 254.50 19.4
UCO BANK 34.85 30.20 15.4
ORIENTAL BANK 136.60 118.85 14.9
I O B 25.75 22.45 14.7
UNITED BANK (I) 20.25 17.70 14.4