Shares of public lenders such as State Bank of India (SBI) surged 11.50 per cent, followed by Punjab National Bank (up 6.65 per cent) and Bank of Baroda (up 6.65 per cent).
The pack of public sector banks moved sharply upwards Wednesday on Reserve Bank of India’s easing capital recognition norms for banks.
The RBI on Tuesday allowed banks to recognise more balance sheet items as common equity tier-I capital which will help unlock up to Rs 35,000 crore for state-run lenders impacted by asset quality troubles.
Market interest in banking stocks have been revived post-budget on hopes of further rate cut by the RBI and reforms in the banking space. As a result, private sector banks were closed the day on a buoyant note. ICICI Bank, HDFC Bank and Axis Bank closed higher by 7.36 per cent, 2.34 per cent and 3.89 per cent, respectively. The benchmark index BSE Bankex closed 4.92 per cent up at 17,179.43.
“The RBI has made some amendments to the treatment of certain balance sheet items for the purposes of determining banks’ regulatory capital. The review was carried out with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards,” the Central Bank said in a press release.
According to Edelweiss, this is a step in the right direction and augurs well for PSU banks which are already reeling under capital constraints (like Union Bank, SBI, OBC, BOI) following higher asset quality stress and transition towards BASEL III framework.
The amendments come a day after a lower-than-expected provision for bank recapitalisation in the budget for 2016-17 at Rs 25,000 crore.
UBS in a research report said, “We expect 50 basis points rate cuts in the calendar year 2016 (from 25 basis points) as the Budget should give the RBI sufficient space.”