PSBs on a roll after RBI doles out Rs 2 trn dividend to govt; index up 2%

At 10:30 am; Nifty PSU Bank index, the top gainer among sectoral indices, was up 2.5%, as compared to 0.42% rise in the Nifty 50, while Nifty Bank and Nifty Private Bank index are up 1%

Shares of public sector banks (PSBs) are in focus with Nifty PSU Bank index gaining over 2 per cent in Thursday’s intra-day trade after the Reserve Bank of India (RBI) announced dividend payment of Rs 2.1 trillion crore for FY25.

At 10:30 am; Nifty PSU Bank index, the top gainer among sectoral indices, was up 2.5 per cent, as compared to 0.42 per cent rise in the Nifty 50. Nifty Bank and Nifty Private Bank index are up by 1 per cent each.

State Bank of India (SBI) soared 2 per cent to Rs 835.50 in intra-day, trading close to its record high level of Rs 839.65, touched on May 9.

Among the other individual stocks, Indian Bank surged 5 per cent to Rs 595.65 on the NSE. Indian Overseas Bank (IOB), Bank of Maharashtra, Bank of Baroda (BOB), Central Bank of India, Bank of India (BOI), Central Bank of India, Union Bank of India and UCO Bank were up in the range of 3 per cent to 4 per cent.

The bumper transfers of  Rs 2.11 trillion dividend by the RBI to the Centre is expected to give the next government fiscal cushion and greater elbow room for expenditure management, the Business Standard reported quoting experts.
Also Read: Bumper RBI dividend of Rs 2.11 trillion to give govt more fiscal room

The dividend transfer is well above the budgeted figure of Rs 1.02 trillion in the Interim Budget for 2024-25 (FY25), which includes dividends from both the RBI and financial institutions.

Higher than budgeted inflow could aid either fiscal consolidation or enhance capital expenditure. While clarity on government's stance is awaited until revised budget, any decline in g-sec yield amid anticipation of fiscal prudence is seen to benefit treasury income of banks, especially PSU banks, ICICI Securities said in a note.

The RBI’s surplus transfer of Rs 2.1 trillion to the central government was an upside surprise. This bumper transfer provides the government with the choices of a faster pace of fiscal consolidation and/or higher spending and/or lower taxes, analysts at Kotak Securities said.

The brokerage firm expects this transfer to have stemmed mainly from large interest income earnings on foreign and domestic holdings and FX sales operations by the RBI. Noting the Indian economy’s continued resilience and robustness in FY2024, the RBI increased the contingency risk buffer (CRB) to 6.5 per cent (from 6.0 per cent in FY2023).

While adhering to the fiscal consolidation path is now relatively easier, there is space to alter the budgeted receipts and expenditure. The government can continue with its capex thrust by increasing allocations to roads, railways and defense (from their single-digit growths over FY2024RE), analysts said.

There is also room for the government to lower personal income taxes to boost consumption at the lower end of the tax pyramid, however, analysts expect the government to focus on higher capex and fiscal consolidation over any stimulus through tax cuts.