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PSU banks trade firm; Bank of India rallies 30% in 10 days

Bank of India, Oriental Bank of Commerce, Union Bank of India, Canara Bank, BOB, PNB, Indian Bank and SBI were up in the range of 1% to 4% on the NSE.

SI Reporter  |  Mumbai 

Bank of India, BOI
Bank of India

Shares of public sector undertaking (PSU) banks were trading higher in an otherwise range-bound market with index gaining nearly 1% on Monday.

Bank of India, Oriental Bank of Commerce, Union Bank of India, Canara Bank, (BOB), Punjab National Bank (PNB), Indian Bank and State (SBI) were up in the range of 1% to 4% on the National Stock Exchange (NSE).

At 01:47 pm; index, the largest gainer among sectoral indices, was up nearly 1%, as compared to a 0.13% decline in the Nifty 50 index. Nifty Bank index and Nifty Private Bank index were too down 0.21% and 0.12%, respectively.

Finance Minister Arun Jaitley on Thursday said that government will infuse Rs 830 billion in public sector banks in the remaining months of the current fiscal (2018-19).

Among various objectives, the infusion is aimed at helping better-performing banks under prompt corrective action (PCA) to come out of the category.

Shares of were trading higher for the 10th day, rising 3% to Rs 101, hitting an over three-year high on the BSE in an otherwise subdued market, on hopes that the bank would come out of the Reserve Bank of India’s (RBI) PCA watchlist this fiscal.

The stock of the state-owned bank was trading at its highest level since September 3, 2018. In the past 10 days, rallied 30% from Rs 77.80, as compared to 2% rise in the S&P BSE Sensex.

A government official said rules that curb unprofitable banks from lending may be eased. Lenders including Allahabad Bank and Bank of India are likely to exit from the RBI-administered PCA, under which they are restricted from expanding their business, the Business Standard reported on December 20.

Besides, Bank of India, Corporation Bank, Bank of Maharashtra (BoM) and Allahabad Bank may exit the PCA framework of the RBI, the report added.

Total 11 banks have been brought under the PCA framework of the RBI. Under this framework, banks are evaluated on capital, NPA, profitability and leverage and would come under this banner if the norms are not met. There are several restrictions put in terms of operations as well as governance.

Being under PCA means banks are constrained form lending and have to lower their concentration in certain vulnerable sectors. Also, they are not allowed to open branches or get into any new businesses. All this will come in the way of growing their income which is concentrated now more in the investment side where their deposits would tend to move. Banks are also supposed to control their staff expenses as new recruitment has been frozen.

“The position of the PCA banks appears to be just about stable but we would have to wait for another two quarters to get a clear picture on whether the asset quality issue has been recognized fully. Also other factors relating to their revival in terms of capital especially will be important,” CARE Rating said in a status of PCA Banks, November report.

First Published: Mon, December 24 2018. 13:52 IST