Stocks of public sector banks soared on Monday, i.e. August 26, after finance minister Nirmala Sitharaman announced on Friday the upfront Rs 70,000 crore recapitalisation plan for the sector.
The Nifty PSU Banking index rose as much as 6.4% in intraday trade. However, it later pared gains to trade 2.8% higher at 1:05 pm compared with 1.4% rise in the benchmark Nifty 50 index.
The major gainers in afternoon trade were Indian Bank (up 7.8%), Central Bank (up 7.6%), Allahabad Bank (up 5.7%), Oriental Bank of Commerce (up 4.2%), Jammu and Kashmir Bank (up 4.1%), Bank of India (up 4%), Canara Bank (up 3.2%), Union Bank (up 3%), Punjab National Bank (up 2.9%), Syndicate Bank (up 2.7%) and State Bank of India (up 2.2%).
“The government has decided to inject Rs 70,000 crore budgeted for the recapitalisation of public sector banks (PSBs) in the current financial year, on an immediate basis,” Sitharaman had said on Friday. The move will release liquidity to the tune of Rs 5 lakh crore into the banking system for lending.
Also, investor sentiment improved on hopes that interest rates on home and auto loans are set to ease further as the government asked banks to launch a range of repo rate-linked products to ensure faster transmission of policy rate cuts to end-borrowers.
“The banks have now decided to pass on any rate cut through MCLR (marginal cost of funds-based lending rate) reduction to benefit all borrowers. This will result in reduced EMIs for housing loans, vehicles and other retail loans, by directly linking repo rates to the interest rates,” Sitharaman said. “Within 15 days of closure of the loan amount, all papers to be given back to the customers,” she added.
Research firm CLSA said in its report that an upfront recapitalization of public sector banks within budgeted levels, refinancing lines to housing financiers, and support for a credit guarantee for non-banking financial companies (NBFCs) are three of the key positives from the announcements made by Sitharaman on Friday.
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