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PSU banks in demand after RBI's operation twist

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Capital Market

Shares of seventeen public sector banks rose 0.42% to 4.12% after the Reserve Bank of India announced special open market operation (OMO) purchase and sale of Government of India dated securities.

Corporation Bank (up 4.12%), UCO Bank (up 3.09%), Syndicate Bank (up 2.96%), Union Bank of India (up 2.81%), Andhra Bank (up 2.62%), Indian Bank (up 2.57%), United Bank of India (up 2.18%), State Bank of India (up 2.16%), Bank of Maharashtra (up 1.98%), Canara Bank (up 1.93%), Punjab & Sind Bank (up 1.84%), Bank of Baroda (up 1.83%), Central Bank of India (up 1.63%), Allahabad Bank (up 1.61%), IDBI Bank (up 1.07%), Punjab National Bank (up 0.71%) and Bank of India (up 0.42%) advanced.

 

Meanwhile, the Nifty 50 index rose 21.80 points or 0.18% to 12,281.50. The Nifty PSU Bank index rose 1.97% to 2,563.25.

The Reserve Bank on Thursday decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for Rs 10,000 crore each on Monday, 23 December 2019.

RBI said it will buy Rs 10,000 crore of 6.45% government bonds maturing in 2029 and simultaneously sell Rs 10,000 crore of short-term bonds maturing in 2020. Simultaneously buying long-end bonds and selling short-end bonds should lead to a flattening of the yield curve.

RBI's OMO plan dragged government bonds yields. The yield on 10-year benchmark federal paper fell to 6.623% at 9:53 IST compared with 6.746% in the previous trading session.

Public sector banks are the biggest beneficiaries of falling interest rates among lenders as a decline in bond yields is expected to boost their bond portfolios. Bond prices and yields move in opposite direction. PSU banks trade in government bonds to benefit from rising bond prices.

A domestic brokerage has reportedly said that banks should report healthy treasury gains with sharp decline in bond yields.

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First Published: Dec 20 2019 | 10:53 AM IST

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