Banking shares gain; Nifty PSU Bank index up 2%

Thus far in March, the PSU Bank index has surged 20% as compared to 13% rise in Nifty Bank and 9% gain in Nifty50 index

Banking shares mainly public sector banks (PSB) were trading higher on the bourses in early morning trade after the government announced a steep cut in interest rates on small savings schemes.

State Bank of India (SBI), Punjab National Bank (PNB), IDBI Bank, Oriental Bank of Commerce, Allahabad Bank, Bank of India and Bank of Baroda were up more than 1% each on the National Stock Exchange (NSE).

At 10:33 AM, the Nifty PSU Bank index was up 1.8% as compared to a less than 1% rise in the Nifty50 index and Nifty Bank index.

The small saving schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patras will fetch up to 90 basis points lower returns during the April- June quarter. The interest rate on PPF scheme will be cut to 8.1% for the period April 1 to June 30, from 8.7%, at present.

According to Angel Broking, this is a very positive step for the banks as the deposit rates by the banks will be reduced accordingly which will ensure a reduction in the lending rate.

“We expect nearly 100 basis points cut in the bank’s base rate over FY2017 and this could lead to a positive impact for all the rate sensitive sectors,” the broking firm said in a client note.

One basis point is a hundredth of a percentage point.

Meanwhile, thus far in March 2016, the PSU Bank index outperformed the market by gaining 20% as compared to 13% rise in Nifty Bank and 9% gain in Nifty50 index.