Stocks surge 2-8% amid high volumes; govt also proposes R70,000 cr infusion over next 4 years
Shares of public sector banks (PSBs) surged 2-8% on Friday amid high volumes and renewed buying interest as the finance ministry proposed to infuse Rs 25,000 crore this fiscal as part of the bank recapitalisation plan and ward-off the highest levels of bad debt in 13 years.
Country’s largest lender by assets, State Bank of India (SBI) advanced over 5% on Friday at Rs 270.40 per share and trading volumes 2.14 times the 30-day average volume of 1.10 crore shares on the BSE and NSE.
Bank of Baroda rose 6.41%, while IDBI Bank and Canara Bank shares climbed 4-6% each helping the gauge of PSU banks, which tracks 12 state-controlled lenders, rise 4.7% – the most since May 11. Union Bank was the top performer with 7% rise.
The government on Friday presented a supplementary demand presented in Parliament to provide for Rs 12,000 crore towards bank recapitalisation. The remaining R5,000 crore would be provided in the second supplementary later this year. The Rs 25,000-crore capital will be allocated this year in three tranches.
The government also laid out a roadmap for the infusion of Rs 70,000 crore in public sector banks over four years. The proposal calls for infusion of Rs 25,000 crore in FY17 and Rs 10,000 crore each in FY18 and FY19. In the annual Budget in February, finance minister Arun Jaitley provided Rs 7,940 crore to bolster capital reserves of the state-run banks.
According to government estimates, public banks need R1.8 lakh crore in extra capital for the next four years up to FY19.
The state is boosting its allocation after central-bank data showed stressed assets at Indian lenders climbed to the highest level since 2002 and capital ratios declined. The government set aside Rs 7,000 crore for state lenders in the fiscal year that ended March, which was the lowest total since at least 2009.
State lenders have historically been under capitalised relative to their privately owned peers as rules requiring government shareholdings of least 51% curtailed their ability to sell shares.
The average capital-adequacy ratio for government lenders is the lowest in the nation’s banking system, which had a ratio of 12.9% as of March 31, the central bank said in a June report. Stressed assets at government banks amounted to 13.5% of lending as of March, compared with 4.6% for privately owned banks, data compiled by the central bank show.