Nifty PSU bank index up 4% on RBI panel proposals, healthy earnings; sector up 15% this month

The PSU Bank index is the best-performing sector on Wednesday, surging nearly 4 percent on the back of Reserve Bank of India's consultative paper with new set of recommendations on ownership in the banking system. The Nifty PSU Bank index gained as much as 3.45 percent on the back of Bank of Baroda, Punjab National Bank and Union Bank.

All these PSU banks surged up to 5 percent in-trade today. However, the top gainer of the index was Indian Overseas Bank, rallying nearly 10 percent to Rs 12.15 per share on the NSE.

In November, on a month-till-date (MTD) basis, the index has jumped nearly 15 percent.

The wave of optimism in the PSU bank index rose even more after the RBI 's internal working group proposed several recommendations to revive the Indian banking sector.

The key suggestions by the panel were to raise promoters' cap to 26 percent from the current 15 percent in the 15-year period and to allow large corporate houses as promoters of banks or take a significant stake in banks. For non-promoter shareholding, the uniform cap of 15 percent can be for all shareholders.

If these recommendations get implemented properly, then experts believe the market share of banks could increase significantly in the coming years.

The recent rally was also due to the Q2FY21 earnings. Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking said, "Key points which favoured expansion in valuation are (a) Improvement in collection efficiency, the majority of the banks have reported more than 90 percent collection efficiency; (b) Improvement in NIM, led by a contraction in excess liquidity and positive impact of capital raise; and (c) Improvement in asset quality owing to standstill benefit given on asset classification."