IDBI Bank, Punjab National Bank (PNB), Bank of Baroda (BOB), Oriental Bank of Commerce and Bank of India from the banking index were up more than 3%. UCO Bank, Dena Bank, Corporation Bank, Indian Overseas Bank, Vijaya Bank and United Bank of India, the non-index stocks, were up in the range of 3% to 8% on NSE.
The boards of three banks – UCO Bank (Rs 1,375 crore), Central Bank of India (Rs 323 crore) and Bank of Maharashtra (Rs 650 crore) - on Wednesday approved the recapitalisation plan. Besides, the government has also decided to infuse Rs 2,257 crore in the Bank of India, Rs 2,729 crore in IDBI Bank, and Rs 243 crore in Dena Bank.
Finance minister Arun Jaitley in October, 2017 had announced an unprecedented Rs 2.11-lakh-crore two-year road map to strengthen public sector banks, reeling under high non-performing assets (NPAs).
Moody's Investors Service says that the gap between the capital profiles of Indian public and private sector banks is expected to narrow following the government's announced Rs 2.11 trillion ($32 billion) recapitalization plan for the public sector banks, which are financially the weaker entities.
Moreover, Moody's Indian affiliate ICRA says the deterioration in asset quality -- in terms of gross non-performing assets (GNPAs) -- may peak by FY2018, but elevated levels of provisioning on these NPAs will continue to negatively affect the banks during FY2018 and FY2019.
"The capital infusion will also help public sector banks build their provisioning coverage ratios as they will be able to allocate much of their operating profits towards loan-loss provisioning without having to worry about the impact on their capital positions," says Alka Anbarasu, a Moody's Vice President and Senior Analyst.
"As such, Moody's expects the rated banks will achieve an average provision coverage of 70% by fiscal 2019, allowing them to take appropriate haircuts on problem assets. Such haircuts reflect one step in the regulator's efforts towards a thorough clean-up of balance sheets across these banks," says Anbarasu.