SBI, UCO Bank and other PSU lenders rally up to 3% on report of govt weighing fresh reform push

Synopsis

PSU bank stocks rallied after reports suggested the government may ease foreign investment limits and explore further consolidation. Potential reforms include corporate entry into banking under strict safeguards. The government aims to build stronger banks to support economic growth, following the 2019 merger of 10 PSU banks into four.

Public sector bank shares rallied up to 3% on Wednesday after a media report suggested that the government is considering a fresh round of financial sector reforms, including a possible relaxation of foreign investment limits and further consolidation of state-run lenders.

The Nifty PSU Bank index rose 2.3%, outperforming a largely subdued broader market. Indian Overseas Bank led the advance with a gain of 2.7%, followed by UCO Bank and Punjab & Sind Bank, which climbed 2.5% each.

Punjab National Bank gained 2.4%, while Bank of Baroda and State Bank of India added 2.1%. Shares of Indian Bank, Canara Bank, Union Bank of India, and Bank of Maharashtra also ended higher, up between 0.5% and 1.9%.

CNBC-TV18, citing sources, reported that the government may pursue further consolidation among public sector banks as it aims to build larger institutions capable of meeting the credit needs of a fast-growing economy.

The report also suggested that the government may consider allowing large corporates into the banking sector, provided there are robust safeguards and regulatory frameworks in place under the RBI’s supervision.

These guardrails could include capping corporate shareholding in banks, preventing the use of bank capital to fund the parent corporate’s own activities, and permitting well-established NBFCs to transition into commercial banks.

The latest reform discussions come amid already high levels of government ownership in several public sector banks. As of the end of the June quarter, the government held more than a 90% stake in four PSU lenders—UCO Bank, Indian Overseas Bank, Punjab & Sind Bank, and Central Bank of India.

In 2019, the government initiated a major consolidation drive in the sector, merging 10 public sector banks into four large entities. The current buzz suggests that the government may now be evaluating the next phase of reforms to strengthen and streamline the sector.

Also read | HDB Financial shares may rally up to 10%, say brokerages unfazed by weak Q1. Why are they bullish?

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