PSU banks in demand after RBI's operation twist 2.0

Shares of seventeen public sector banks rose 1.21% to 10.71% after the Reserve Bank of India (RBI) said it will conduct a simultaneous sale and purchase of bonds on 30 December following a review of liquidity situation.

Punjab & Sind Bank (up 10.71%), Allahabad Bank (up 7.89%), Bank of Maharashtra (up 5.48%), Bank of Baroda (up 4.95%), Punjab National Bank (up 4.62%), Syndicate Bank (up 4.07%), UCO Bank (up 3.87%), Canara Bank (up 3.18%), Union Bank of India (up 3.03%), Indian Bank (up 2.64%), State Bank of India (up 2.36%), United Bank of India (up 2.28%), Central Bank of India (up 2.24%), Corporation Bank (up 2.23%), Bank of India (up 1.9%), Andhra Bank (up 1.45%) and IDBI Bank (up 1.21%) advanced.

The Nifty PSU Bank index rose 3.45% to 2,581.65. The Nifty 50 index rose 75.10 points or 0.62% to 12,201.65.

RBI on Thursday said it will buy Rs 10,000 crore worth of the current benchmark 10-year bond on 30 December 2019 while selling four bonds maturing in 2020 for an equivalent amount. Simultaneously buying long-end bonds and selling short-end bonds should lead to a flattening of the yield curve.

The yield on 10-year benchmark federal paper fell to 6.51% at 11:15 IST compared with 6.576% in the previous trading session.

Earlier this week, RBI had conducted a similar open market operation (OMO) and purchased securities worth Rs 10,000 crore and sold securities worth Rs 6,825 crore.

The falling yields and rising bond prices are credit positive for state-run banks as mark-to-market (MTM) profit from the government bonds' increases in their investment portfolios.

Last week, a domestic brokerage said that banks should report healthy treasury gains with sharp decline in bond yields.

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