SBI, PNB, PSU bank stocks rally up to 40% on Modi government’s Rs 2.11 lakh crore recapitalisation

Shares of PSU banks rallied heavily on Wednesday following Modi government’s plan to recapitalise the lenders with a huge capital size of Rs 2.11 lakh crore. The stocks of all the listed state-run banks on the PSU bank index of NSE traded in green today with a maximum rise of up to 40%. About Rs 7,300 crore worth of shares exchanged hands on the Nifty PSU Bank index within an hour trade which is Rs 2,300 crore (approx) short of Rs 9,600 crore turnover of Nifty as at 10:17 am. India’s largest bank by asset size and loan book — State Bank of India — jumped as much as 24.56% to hit the 52-week high of Rs 316.95.

Shares of all the major listed PSU banks surged massively in the wee hours of trading. Punjab National Bank was the biggest gainers among the banking stocks, rose 40% to hit the 52-week high of Rs 193.45, followed by Bank of Baroda – up 29%, Union Bank – up 20%, Canara Bank – up 20%, Bank of India – up 20%, State Bank of India – up 20%, Oriental Bank of Commerce – up 17%.

The Nifty Bank index suffered the contrary trade between heavyweights SBI, PNB, ICICI and HDFC Bank, Kotak Mahindra Bank, Yes Bank, advanced 935.65 points to hit the day’s high of 25,157.8 points but failed to breach the record high of 25,198.8 points. The Nifty PSU Bank index soared the most since the time it was constituted. The index gained 743.05 points or 24% to hit the all-time high of 3,835.9 points.

Sensex and Nifty opened at lifetime highs on Wednesday cheering Modi government’s Rs 2.11 lakh crore plan to recapitalise PSU banks. BSE Sensex gained as much as 509.99 points to hit the all-time high of 33,117.33 points while NSE Nifty added 132.85 points to mark the record high of 10,340.55 points. The heavyweight banking stocks such as Punjab National Bank, State Bank of India, Bank of Baroda, ICICI Bank all advanced heavily in the opening trade. The benchmark Sensex rose 387.94 points to open at 32,995.28 points and NSE Nifty jumped 113.45 points to start at 10,321.15 points.

In a major announcement, Finance Minister Arun Jaitley on Tuesday said that the cabinet has approved Rs 1.35 lakh crore for India’s ailing public banking system from recapitalisation bonds, of the total approved 2.11 lakh crore. Recap Bonds are used as payment for the shares bought by the government to ailing banks in a bid to raise their capitals. Earlier in the 90s, the then government had issued recap bonds to borrow from the banks without allowing fiscal deficit to expand.

“It was decided that a bold step needs to be taken by the government to recapitalise banks,” he added. The banking sector fears accretion of more than Rs 40,000 crore of bad loans to its books following recent classification of eight consortium accounts of Axis Bank as non-performing assets (NPA) by the RBI.