Bank Nifty gained 3.28% on Monday to close at a lifetime high of 15,287.25 points, with PSU banks gaining 3-12% on reports that the government is working on a holding company to infuse capital into PSUs.
The holding company will reportedly be a repository of government equity in all state-run banks. This move will be in line with the recommendations made by the PJ Nayak report, which came out on May 13. Sources say the finance ministry is considering a new Bill for the holding company structure that will need Parliament’s nod.
State Bank of India (4.12%), Bank of Baroda (3.82%), Punjab National Bank (3.62%) and Canara Bank (6.69%) were the major gainers on Monday. Private players also saw buying interest, with ICICI Bank (2.94%), HDFC Bank (3.25%) and IndusInd Bank (3.49%) seeing a spurt. Axis Bank (3.55%) and Yes Bank (1.33%) ended at lifetime highs of R1,901.35 and R576.95, respectively.
The CNX PSU Bank Index ended 4.56% higher at 3,812.15 points with Syndicate Bank gaining nearly 12%.
As per the PJ Nayak-headed panel, “the report projects, under different scenarios, the capital requirements till March 2018 in order that provisions are prudent, there is adequate balance sheet growth to support the needs of the economy, and capital is in line with the more demanding requirements of Basel 3”.
Morgan Stanley, in a recent report, said the key issue with state-owned enterprise(SOE) banks over the next 2-3 years is likely to be lack of capital. The starting point of tier-1 ratios is well below our view of steady state tier-1 for SOE banks under Basel 3 (above 10%).
Analysts believe PSUs would need to raise $30-45 billion by FY18 to meet the Basel III norms. “Given the low profitability and high provisioning requirement, they will actually be consuming capital at a fast pace. In our view, these banks will need to raise $30-45 billion of capital by FY18,” Morgan Stanley added.
The RBI in March extended the deadline for the full implementation of the Basel III norms by a year to March 31, 2019, providing a breather to PSU banks. Under Basel III norms, a banks' tier-I capital must be at least 7%, while the total capital (tier 1 + tier 2) must be at least 9% on an ongoing basis.
The RBI’s monetary policy on Tuesday will be the next trigger for the bank stocks. Experts believe the central bank is likely to keep a status quo on interest rates.
“We believe subdued growth is unlikely to prompt it to change its repo rate from 8%. The RBI governor will likely await more clarity on the impact of monsoon rains on CPI inflation and the new government’s commitment to fiscal consolidation,” Standard Chartered Securities said in its report.