PSU banking space shines; Allahabad Bank, OBC up over 10% in 2 days
NEW DELHI: The BSE PSU index surged over 1 per cent in trade on Tuesday, led by gains in Allahabad Bank, Orietal Bank of Commerce and Andhra BankBSE 5.28 % which have rallied over 10 per cent in two trading sessions.
The PSU banking shares extended their rally for the second day in a row after the Reserve Bank of IndiaBSE 4.54 % (RBI) slashed cash reserve ratio (CRR) by 25 bps to reduce borrowing costs.
"Shares in state-owned banks gain on hopes that the government would soon take a decision on restructuring debts of State Electricity Boards (SEBs)," Reuters reported. According to media reports indicated that a cabinet committee is likely to take a call on financial restructuring of SEBs on Thursday.
The report added states will take a burden of 50 percent of the debt and issue bonds against it, while the other 50 percent of debt will have to be restructured by the banks.
"We are positive on the banking space in view of a likely economic revival," said Ramanathan K, executive VP & head, ING Investment Management, in an ET report.
"Midcap and PSU banking scrips trading at 0.5-1 times their book value would benefit, and the spread between them and their private sector peers, trading at 3 times book value, would narrow."
Most analysts are of the view that economic revival bodes well for banks, especially government ones.
At 11:00 am, Allahabad BankBSE 5.26 % was trading 3.8 per cent higher to Rs 138.25. Tracking the strong momentum in the stock, Ashwani Gujral has placed an intraday buy target for the public sector bank at Rs 152 with a stop loss of Rs 134.
Andhra Bank was trading 4.1 per cent higher at Rs 102.60, Bank of India surged 3.6 per cent to Rs 291.25, Canara BankBSE 6.27 % advanced 4.6 per cent to Rs 70.25 and Oriental Bank of Commerce was trading 7.4 per cent higher at Rs 273.20.
Analysts expect the rally to continue for some more time before reaching a plateau.
"Change in stance on PSU banks is not due to any structural change, but in fact caused by the government's and the RBI's actions on fiscal and monetary policies," Dolat Capital said in a report.
"Sustained rally in PSU banks would come from improvement in banks' credit demand and asset quality (as result of the fiscal and monetary policy actions)," added the report.
Despite the overall optimism, asset quality continues to remain a matter of concern. ET quoting a Deutsche Bank report says that the gross NPAs would remain at elevated levels even though slippages may moderate in absolute terms.
Among PSU banks, it estimates SBI's bad debt to rise to 5.5% of total loans this year from 4.5% in FY12, while ICICI Bank's NPAs are expected to rise to 4.1% from 3.7%. However, market opinion has changed since the last week with the government taking a slew of pro-reform measures like allowing FDI in multi-brand retail.
"If the RBI does not change its hawkish stance, we believe that expectations of monetary loosening increase the risk-reward for PSU banks, where our preference remains SBI (high beta, low exposure to power sector)," Deutsche Bank said in a report.
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