PSU bank shares rally as Modi fires Rs 80,000 crore additional bond booster to revive NPA-laden lenders

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Published: January 4, 2018 1:35:46 PM

Shares of almost all PSU banks rallied up to 10% in the afternoon trade on Thursday as Narendra Modi government sought another Rs 80,000 crore bonds for the recapitalisation of NPA-laden state-run lenders.

Shares of State Bank of India rose 2.42% to the day?s high of Rs 310.2 on NSE. (Image: Reuters)

Shares of almost all PSU banks rallied up to 10% in the afternoon trade on Thursday as Narendra Modi government sought another Rs 80,000 crore bonds for the recapitalisation of NPA-laden state-run lenders. The heavyweight stocks such as State Bank of India, Bank of Baroda, Punjab National Bank, and Bank of India gained up to 5% in quick successions. The Nifty PSU Bank index surged as much as 2.9% to the day’s high of 3,729 after opening little higher at 3,643.6 on Thursday. The shares of mid-sized state-run banks such as UCO Bank, Dena Bank, and IDBI Bank jumped heavily, rising by up to 10%. The Narendra Modi government on Thursday sought parliamentary nod for additional Rs 80,000 crore bonds for the recapitalisation of public sector banks (PSBs) which are sitting on a pile of Rs 9.8 lakh crore bad loans.

The stock of SBI was trading 2% higher at Rs 308.95; Syndicate Bank was trading up 2% at Rs 81; Bank of Baroda gained 4.15% to Rs 164.4; Punjab National Bank advanced 4.2% to Rs 173.6; Bank of India rose 4.25% to Rs 175.5 while IDBI Bank surged 10%. This is the third supplementary demand by the government in the current fiscal. On December 18, the government had sought approval for additional expenditure of Rs 66,113 crore, which includes 76 Grants and 3 Appropriations for electricity connection, MGNREGA and others.

The government, in a major step to bring in reforms in the ailing banking system, approved an unprecedented Rs 2.11 lakh crore for recapitalisation of banks over the next two years in a bid to clean banks’ books and revive investment in a slowing economy, of which Rs 1.35 lakh crore was in form of government bonds and Rs 76,000 in form of budgetary allocation and market raising.

The government on Wednesday approved a capital infusion of Rs 7,577 crore in six weak PSBs as part of its Indradhanush bank recapitalisation plan to boost their capital adequacy ratio. All the six banks are those banks that been put under Reserve Bank of India’s watch for high non-performing assets (NPA). These banks are Bank of India, IDBI Bank, Central Bank of India, Dena Bank, Bank of Maharashtra and UCO Bank.

Under the Indradhanush Plan, the government allocated Rs 70,000 crore for four years — Rs 25,000 crore each for FY 15-16 and 16-17 and Rs 10,000 crore each for 17-18 and 18-19. Lenders, which will receive capital through the preferential issue of shares, include Bank of India, IDBI Bank and UCO Bank. Introduced in 2015, the Indradhanush plan was meant to infuse Rs 70,000 crore in state-run banks over four years to meet their capital requirement in line with global risk norms, known as Basel-III.

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