PSU Banks continue to gain on privatisation hope; IOB, Central Bank, Bank of Baroda jump up to 20%

Public sector lenders advanced up to 20% in Thursday’s trade amid reports that the government is likely to bring amendments to two legislations later this year to facilitate the privatisation of public sector banks.

Shares of Indian Overseas Bank advanced the most 19.75% to Rs 18,80. It was followed by Central Bank (up 18.25%), Bank of Baroda (up 12.47%) and Union Bank (up 11.81%).

Earlier this month, Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 announced the privatisation of Public Sector Banks (PSBs) as part of disinvestment drive.

Bank of Maharashtra, Bank of India, UCO Bank, Indian Bank, Punjab National Bank and Canara Bank also advanced between 3%-13%. On the other hand, the benchmark NSE Nifty index traded 73 points, or 0.48% lower at 15,136.

Among the other PSU majors, State Bank of India and J&K Bank were also up over 1%. SBI hogged the limelight after global brokerage firm Morgan Stanley raised the target price to Rs 600. The scrip traded at Rs 417 in the afternoon trade on February 18.

“SBI has built a strong retail franchise and also sustained its deposit market share. Even on digitisation, the progress has surprised, unlike peer SoE banks. As the corporate cycle turns, we expect earnings estimate upgrades and significant re-rating. In fact, SBI reminds us of China Merchants Bank (a well-run bank promoted by the state), which has shown sustained improvement in its retail franchise compared to China’s SoE (state-owned enterprise) banks and hence achieved better profitability – thereby widening valuation differential. Though there are significant differences between CMB and SBI, we believe SBI could show a similar re-rating trend vs. Indian SoE banks,” Morgan Stanley said.