PSU banks extend gain; IDBI Bank, Canara Bank up over 4%

Shares of public sector undertaking (PSU) banks were trading higher for the second day in a row, gaining nearly 4%, after the Monetary Policy Committee (MPC) in its second bi-monthly policy for 2018-19 voted unanimously for a hike in policy repo rate of 25 bps, while retaining its neutral stance.

At 02:53 pm; Nifty PSU Bank index was up 1.4% on Thursday, extending its Wednesday’s 2.5% surged on the National Stock Exchange (NSE). On comparison, the Nifty 50 index was up 1.9% in past two trading sessions.

IDBI Bank, Canara Bank, Oriental Bank of Commerce, Bank of India, Union Bank of India and Andhra Bank from Nifty PSU Bank index were up in the range of 3% to 5%, while Bank of Baroda, Punjab National Bank, Indian Bank, Syndicate Bank and Allahabad Bank up 2% each on the NSE.

RBI retained its projection for FY19 GDP growth at 7.4% with a range of 7.5-7.6% in H1 and 7.3-7.4% in H2 FY19. To quote “The MPC notes that domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed. Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code.”

The rating agency CRISIL believes there is a possibility of another rate hike if crude oil prices stay at current levels. While monetary policy will stay vigilant, further policy rate action will most likely only be effected if the rise is perceived as being sustainable, with pressures suggesting seepage into generalised inflation through stronger domestic demand.

CRISIL Research expects banking credit to accelerate to 10-12%, supported by an improvement in economic growth and resolution of big-ticket stressed assets, while deposit growth is expected to be 7-7.5% in fiscal 2019.

Meanwhile, Moody's Investors Service expects the Indian government's (rated Baa2 stable by Moody's) recapitalization plan will still broadly resolve the regulatory capital needs of the country's 21 public sector banks (PSBs) and help augment the banks' loan-loss buffers, but will be insufficient to support credit growth.

Moody's Indian affiliate ICRA says that, with the accelerated recognition of stressed assets during FY2018, the asset quality problems of the banks peaked in March 2018 and further additions to gross non-performing assets (GNPAs) will decline with fresh slippages falling to around 3.0% during FY2019 compared to 7.1% during FY2018 and 5.5% during FY2017.

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