Shares of public sector banks (PSBs) rallied 2-6% and the gauge tracking state-owned banks reversed its seven-day losses on short covering, following reports the government is reviewing stake sale and merger of various public sector banks to strengthen the sector and that the Centre prefers to give preference to retail investors.
Oriental Bank of Commerce (OBC) was the biggest gainer, surging 5.7%. It saw a 1.7-times increase in trading volume on the BSE and NSE. Nearly 35 lakh shares were traded on Monday compared with an average 20.31 lakh in the last 30 sessions.
Barring the State Bank of India (SBI), all banking shares comprising the CNX PSU Bank index ended positive. The country's second largest lender by assets, Punjab National Bank (PNB), rose 3.7%. Syndicate Bank advanced 3.35%.
The PSU Bank index ended 0.73% (24.70 points) higher at 3,430.90 after losing 470 points, or 13.7%, in the last seven sessions. In contrast, the Sensex ended down 17 points on Monday, extending its four-day losing streak, to 25,006.98.
GS Sandhu, secretary, department of financial services, on Monday said the government has received various suggestions pertaining to consolidation of state-owned banks and the Centre intends to raise more than R11,000 crore by way of the capitalisation exercise.
“What the Budget says is that, largely, the disinvestment will be to the retail segment, so the citizens of this country can partake in the growth of these banks, growth of the economy... Initially, we will go the retail route... That will be our first preference. We will review; already, the exercise is on with each bank, we are connecting a review and there we will see to what extent we have to go to the retail and, in case there is any issue on the QIP issue side, we will address that subsequently,” Sandhu said in a TV interview.
Analysts, however, foresee a muted performance for Q1FY15 in the banking space and said Monday's rally may be momentary. Revenue as well as loan growth could be sluggish due to lower treasury income and higher provisions to meet the unhedged foreign exposure guidelines that will be implemented from this quarter.
“We expect commentary on growth to remain muted, at least for the short term. While we see rising expectation from investors for a revival in capex cycle leading to better demand for loans, we are less optimistic on this front, at least over the next