Shares of public sector undertaking (PSU) banks were on a roll with Indian Overseas Bank (IOB), Central Bank of India, Punjab & Sind Bank (PSB) and Uco Bank soaring up to 19 per cent on the back of heavy volumes, in an otherwise subdued market. In the past four trading days, the stock prices of these banks have zoomed between 40 per cent and 45 per cent.
Besides these four banks, Bank of India, Bank of Maharashtra, Union Bank of India, Indian Bank, and Punjab National Bank (PNB) were up in the range of 5 per cent to 8 per cent. Except State Bank of India (SBI) and Indian Bank, all other PSU banks were quoting at their respective multiyear highs.
Nifty PSU Bank index hit a new high today, and was the top gainer among sectoral indices, up nearly 4 per cent. By comparison, the Nifty50 was down 0.1 per cent at 1:10 PM. In the past five days, the PSU Bank index has rallied 8 per cent on expectations of improved earnings and asset quality of the state-owned banks.
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According to analysts, the government should continue to provide strong support, both, on an ongoing basis and in the event of distress. This is because, the Government of India (GoI) is the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system.
Stability of the banking sector is of prime importance to the government, considering the sector’s criticality to the economy, the strong public perception of sovereign backing for PSBs, and adverse implications of any PSB failure, in terms of political fallout, systemic stability, and investor confidence,
Among individual banks, IOB hit over eight-year high of Rs 47 as it zoomed 18 per cent on the back of over two-fold jump in trading volumes. In the past four trading days, it has soared 45 per cent. The stock was quoting at its highest since April 2015. A combined 235 million equity shares of the bank have changed hands on the NSE and BSE till 12:36 PM.
The bank’s sustained improvement in earnings and asset quality, and strengthening of capital position, which is likely to be maintained over the medium term, is driving the sentiment, according to analysts.
"The bank has been profitable since the past three fiscals (fiscal 2021) owing to lower credit cost backed by less incremental stress as well as improving net interest margins (NIMs). With higher provisions and lower slippages, the bank is expected to maintain profitability over the medium term," CRISIL Ratings said.
As regards Uco Bank, the rating agency said the bank should maintain its resource profile, supported by its established market position in eastern India, which has helped maintain a stable deposit base.
Shares of Uco Bank rallied 13 per cent to Rs 45.80 in the intraday trade today. In the past four trading days, it has surged 36 per cent. The stock was trading at its highest level since July 2016.