Shares of govt banks rise on reports of capital infusion

Despite the negative market sentiment, shares of state-owned government banks rallied on Friday on reports of additional capital infusion by the government.

Shares of most PSBs gained, even as the overall market ended weak due to disappointment fourth-quarter results posted by many companies, including private sector lender ICICI Bank. Major gainers were mid-sized government banks, including Oriental Bank of Commerce, Indian Overseas Bank and Allahabad Bank, which gained about three per cent each. The Sensex and the BSE Bankex closed with a loss of 0.82 per cent and 0.68 per cent, respectively.

Quoting finance ministry officials, a Press Trust of India report said the Centre was planning to infuse up to Rs 7,000 crore into public sector banks (PSB) this financial year. “In the interim Budget, the government had provided Rs 11,200 crore for public sector banks. There could additional provision of Rs 7,000 crore for these banks when the government tables the regular Budget for 2014-15 in June-July,” a senior finance ministry official was quoted as saying.

In 2013-14, the government had infused about Rs 14,000 crore into PSBs. Besides capital infusion by the government, state-owned banks also tap the equities market for capital. In the recent past, however, many banks, including State Bank of India (SBI), have found it challenging to raise capital from the market. In January, SBI’s qualified institutional placement had to be bailed out by state-owned insurer Life Insurance Corporation.

Earlier, investors had turned wary towards state-owned banks, owing to their weak financial and credit profiles. Also, their profitability had been under pressure due to higher provisioning towards non-performing assets. In recent months, investor sentiment towards PSBs has improved due to cheap valuations.

So far this year, most state-owned banks have outperformed the market.