PSU bank stocks in recovery mode

Stocks of public sector banks extended their recent gains triggered by media reports that the Reserve Bank of India may ease bad-loan recognition norms for lenders

At 13:58 IST, stocks of 10 public sector banks (PSU banks) were up 0.4% to 5%. Punjab National Bank was up 3.3% at Rs 83.45. State Bank of India was up 0.4% at Rs 211.25. Bank of Baroda was up 1.8% at Rs 150.55. Orinetal Bank of Commerce was up 3.09% at Rs 91.65. Union Bank of India was up 1.4% at Rs 122.30. Bank of India was up 2.5% at Rs 90.70. UCO Bank was up 5% at Rs 37.30. Canara Bank was up 1.9% at Rs 197.70. Andhra Bank was up 2.8% at Rs 51.70. Vijaya Bank was up 2.8% at Rs 32.05.

Meanwhile, the S&P BSE Sensex was off 223.55 points or 0.83% at 26,797.11.

PSU bank stocks have made a strong rebound during the past 3-4 trading sessions after media reports suggested that Reserve Bank of India (RBI) is considering a proposal to allow banks to reclassify some borderline cases as standard loans, where repayments were missed due to reasons outside the control of borrowers such as governmental department delays. Shares of SBI have risen 7.5% in four trading sessions from its close of Rs 196.50 on 3 June 2016. Stock price of Bank of Baroda has risen 7.38% in four trading session from its close of Rs 140.20 on 3 June 2016. Shares of Punjab National Bank (PNB) have risen 9.58% in four trading sessions from its close of Rs 76.15 on 3 June 2016. The stock price of Union Bank of India (UBI) has risen 7.99% in four trading sessions from its close of Rs 113.25 on 3 June 2016.

Any relaxation of the bad-loan recognition rules could possibly lower provisioning requirements and boost earnings at banks. Banks have reported poor earnings in the past two quarters following the RBI diktat to provision adequately for bad loans aimed at cleaning bank balance sheets.

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