PSU banks all in the red

Amongst the top five losers on the BSE, the top four are PSU banks. It is led by Syndicate Bank, down 5.5% at Rs.78; SBI is down over 4%, BoB, Bank of Maharashtra, Andhra Bank, Indian Bank, Allahabad Bank, Union Bank, PNB; almost every PSU bank stock is down in the red. IDBI Bank is the biggest beneficiary as it received Rs.10,610 crore – the highest allocation.

The reason is the bank recapitalization plan announced by the Govt yesterday. Under the first tranche, banks will get Rs.88,139 crore. The total money allocated is Rs.2.11 lakh crore.

Eleven PSU banks under the prompt corrective action framework of the RBI will receive Rs Rs 52,311 crore in form of recapitalisation. The other state-owned banks will receive Rs 35,828 crore.

Money for this will come through budgetary allocation worth Rs 8,139 crore and recapitalisation bonds worth Rs 80,000 crore.

The overall perception is that in this first tranche, 60% of the capital allocation is biased toward weaker banks requiring corrective action, thus, limiting access to growth capital for larger banks. JP Morgan has asked its investors to switch out of PSU banks into relatively well-capitalized private high NPL banks that are better positioned for growth. Macquarie has asked its investors to avoid all PSU banks but prefers SBI amongst all. Motilal Oswal has said that SBI and BoB remain its top picks within the PSU banking space.