PSU banks extend rally; SBI surges over 10% in three days

In the past three trading sessions, the PSU bank index has rallied 12.5% against a 2.1% rise in the benchmark index.

Shares of public sector undertaking (PSU) banks are trading higher on the bourses for the third straight day after the government proposed to infuse Rs 70,000 crore in PSU banks over four years.

State Bank of India (SBI), Bank of Baroda, IDBI Bank, Union Bank of India, Canara Bank and Syndicate Bank are up more than 3% each, while Bank of India, Punjab National Bank, Oriental Bank of Commerce, Andhra Bank and Indian Overseas Bank are up 2-3% each on the National Stock Exchange (NSE).

At 10:38 AM, the CNX PSU Bank index was up 4% at 3,545 points, compared to a 0.22% rise in the CNX Nifty at 8,552. In the past three trading sessions, the PSU bank index has rallied by 12.5% against a 2.1% rise in the benchmark index.

SBI has soared by 5% at Rs 283, extending its 6% rally in the past two trading days on the NSE. Bank of Baroda has surged by nearly 7% at Rs 190. The stock has rallied by 24% in three days from Rs 153 on July 29.

According to Religare Institutional Research, the top six banks account for two-third of PSU banks’ credit and the government plans to allocate 40% of the capital to them. The remaining 60% will go to weaker banks (one-third of credit), which may find it difficult to raise money directly from the market.

Some small and mid-size PSU banks are trading at a steep discount to peers due to fears of dilution below book value in order to meet Basel III norms. Higher capital from the government is positive for them. Banks such as Union Bank of India, Bank of India and Canara Bank will benefit the most, the report added.