PSU bank stocks make the most of demonetisation move

Prices jump 6-22%; private lenders' shares slide 3-10%

The shares of public-sector banks have emerged the major gainers from demonetisation. At a time when benchmark indices have declined about 5%, major state-owned banks’ stock prices have moved up 6-22%. 

For instance, the Union Bank of India stock has gained 21% since November 8, when Prime Minister Narendra Modi announced the decision to demonetise Rs 500 and  Rs 1,000 currency notes. It is followed by Bank of Baroda with 18.6% gains, Bank of India with 11.4%, while Canara Bank and State Bank of India have registered 10% increase in their scrips. 

On the contrary, private-sector banks have a completely different picture on the stock exchanges. Nearly all major private lenders have lost share value since the demonetisation took off. 

For instance, IndusInd Bank cracked 9.24% followed by ICICI Bank, which registered a decline of 6.6%. HDFC Bank, Axis Bank, Kotak Mahindra Bank and YES Bank are all down 3-4%. 

Given the reach of state-owned banks in India's hinterland where people tend to keep much more cash holdings than their urban counterparts, state lenders are witnessing high deposits at their branches. This is not only going to help them have higher deposits but also better their current and savings account, or Casa, ratio. 

According to public-sector bank executives, the huge flow of deposits will bring down the cost of funds. As a consequence, banks will have room to cut lending rates as well, helping support demand for credit in the next few quarters. However, the demand for loans might dip in the near term as businesses and people grapple with the adverse effects of demonetisation. 

As much as ~5 lakh crore has already come into bank deposits since November 10. Even after taking into account the withdrawal and use of money in regular business, most of the funds would remain with banks, said a senior executive with Indian Banks’ Association. 

In the long-term, more cash-based business activities would come into the banking system, said a State Bank of India executive. SBI’s tally of low-cost deposits was 42.74% at the end of September 2016. 

SBI chairman Arundhati Bhattacharya had recently said that such deposits from smaller customers would not move out of the system in a hurry. This explains why state banks are currently the favourite among investors. 

Collectively, the top six public sector lenders have nearly 45,000 branches across the country. SBI leads with 17,000 branches spread across the length and breadth of the country followed by Punjab National Bank and Bank of Baroda. 

On the other hand, all the major private banks put together have lesser number of branches than that of SBI. 

READ OUR FULL COVERAGE ON THE MODI GOVT'S DEMONETISATION MOVE

	Banks' share price movement since demonetisation
Company	11-08-16	11-18-16	Change in share price (%)
	Rs/share	Rs/share
PSU banks
Union Bank of India	129.55	157.25	21.38
Bank of Baroda	149	176.7	18.59
Bank of India	109	121.45	11.42
State Bank of India	252.34	277.7	10.04
Canara Bank	296.6	326.3	10.01
Punjab National Bank	140.6	149.7	6.47
Private banks
IndusInd Bank	1213	1101	-9.24
ICICI Bank	283.2	264.55	-6.59
Kotak Mahindra Bank	810.95	779.3	-3.81
YES Bank	1,223.95	1,179.85	-3.61
Axis Bank	490.8	473.45	-3.54
HDFC Bank	1,254.6	1,211.6	-3.43
Source: BSE