Privatisation Buzz Elevates Selective Bank Shares by 20%

Banks such as Central Bank of India, Bank of Maharashtra, Indian Overseas Bank, and Bank of India all has hit respective upper circuits as of Thursday’s trading session. The raise in these state-owned banks has occurred days after news agency Reuters has announced that these could be part of government’s privatisation drive next fiscal year. Earlier, in the Union Budget, Finance Minister Nirmala Sitharman had stated that the government will privatise four banks and an insurance company.

Central Bank of India’s share price was at Rs 24.04 per share on Thursday, while Indian Overseas Bank stock price was at Rs 19 apiece, both at 20 percent upper circuits. Shares of Bank of India hit 10 percent upper circuit along with Bank of Maharashtra. However, the government has still not officially announced the names of the banks it plans to privatise.

Earlier this month, global rating agency Moody’s said that NPA risks might be easing for PSU Banks but those will continue to remain stressed due to shortage of capital while profitability remains missing. The Government has decided to recapitalise banks, but, that is expected to just help them meet Basel capital requirements and not boost credit growth.

“I don’t see any fundamental reason to go for PSU Banks right now,” Binod Modi, Strategy Head, Reliance Securities told Financial Express Online. Currently, only the privatisation news is fuelling the prices of these state-owned banks. It is difficult to get a fair idea on PSU banks owing to the situation their balance sheets are in right now. Even RBI is cautious while talking of PSU banks, raising asset quality issues,” he adds.

Among lenders, Binod Modi prefers large private sector banks. “Private banks look to be better. The way they have performed, be it on provisions or their asset quality, it gives an edge to private sector banks,” he states. Lately, Morgan Stanley had revealed that large private banks have emerged stronger post-crisis with stronger balance sheets, and growth/market share accelerating.