An embargo on private-sector banks to carry out government-related transactions including taxes and pension payments has been lifted, the finance ministry said on Wednesday, which analysts said was a positive for these lenders.
"The government on Wednesday has lifted the embargo on private sector banks (only a few were permitted earlier) for the conduct of government-related banking transactions such as taxes and other revenue payment facilities, pension payments, small savings schemes, etc. This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services. Private sector banks, which are at the forefront of imbibing and implementing latest technology and innovation in banking, will now be equal partners in development of the Indian economy and in furthering the social sector initiatives of the government," said Ministry of Finance in a statement.
With the lifting of the embargo, there is now no bar on RBI for authorisation of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to RBI.
Consequently, the bank stocks rose on Wednesday. HDFC Bank and ICICI Bank were among the top gainers, closing 5% and 4% higher, respectively. Axis Bank too rose 5%.
"A late surge by bulls across financials post lifting of the embargo on the grant of GOI business to private banks took indices up 2 per cent when trade time was extended till 5.00 pm," said S Ranganathan, Head of Research at LKP Securities.
Equity benchmark Sensex soared 1,030.28 points and the Nifty rallied over 270 points on Wednesday, tracking strong buying in financial stocks, after trading hours were extended following a technical glitch at NSE.
After resumption of trade at 3.45 pm, NSE Nifty zoomed 274.20 points or 1.86% to end at 14,982.
Similarly, the 30-share BSE index settled 1,030.28 points or 2.07% higher at 50,781.69.
Axis Bank was the top gainer in the Sensex pack, surging around 5%, followed by HDFC twins, ICICI Bank, Bajaj Finance and SBI.