Nifty PSU Bank index jumped into the green after the Finance Minister proposed to allocate Rs 70,000 crore for PSU Bank recapitalisation, Nirmala Sitharaman said in the Budget speech.
Central Bank of India, Indian Bank, State Bank of India and Syndicate Bank gained after the announcement while J&K Bank and Allahabad Bank were marginally down.
From the private banking space, the top gainers were IndusInd Bank, Kotak Mahindra Bank and HDFC Bank while YES Bank was down over 3 percent.
PSU banks are likely to see a turnaround in profitability given that most of the pain has been recognised and NPA and credit costs are peaking out, which will lead to an improvement in return ratios, suggest experts.
In the period between FY15 and FY19, the government infused over Rs 2.5 lakh crore in public sector banks by way of direct equity through budgetary resources but largely by issuing recapitalisation (recap) bonds.
The recap bonds were announced in Sep’17 and the first tranche of Rs 80,000 crore was issued in Jan’18, followed by subsequent issuances. The Interim Budget made no provision for recapitalisation.
The capital infusion in respective PSU banks will be positive and it will compensate for balance sheet clean-up efforts.
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