Why This State-Run Bank Jumped 17% Today

Bank of Baroda shares gained as much as 17 per cent, while Canara Bank advanced over 5 per cent on Monday on account of a series of reforms announced by the government on Friday.

The government on Friday named private bankers to lead Bank of Baroda and Canara Bank, the first such appointments in a broad reform plan to shake up the country’s banking system.

The finance ministry reiterated that it is providing Rs 25,000 crore each in the current and next fiscal year, while Rs 20,000 crore would be provided during 2017/18 and 2018/19 in a bid to boost capitalization of public sector banks.

The country’s big six banks, State Bank of India, Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI, will get Rs 14,680 crore, the ministry said.

The announcement led to buying in Bank of India, Punjab National Bank and State Bank of India, all of which outperformed the broader markets that traded over 1 per cent lower on account of profit taking.

“Sentimentally, it’s a positive… The good thing is that now there is a clear roadmap that the government will bring in Rs 72,000 crore and banks will raise Rs 1.12 lakh crore over the next four years,” said TS Harihar of HRBV Client Solutions.

The government hopes these changes can help improve governance and boost earnings in more than two dozen public sector banks that make up more than 70 per cent of the country’s banking assets.

In addition to senior jobs, financial services secretary Hasmukh Adhia said that the government was also considering allowing public sector banks to hire mid-level executives from outside the state banking sector.

The bank reforms, expected to help to revive India’s sluggish growth, also included more details of the bank board bureau that will help state banks with strategies for growth and development.

“The entity will house the government’s stake in public sector banks. Envisaged as a panel of eminent professionals, the bureau will advise banks and act as a link with the government,” brokerage Maybank said in its report.

Some analysts, however, expressed disappointment that the government did not outline its strategy to tackle rising non-performing assets in the banking sector. High levels of NPAs in state-run banks have made it hard for the government to revive investment or accelerate growth, analysts say.

“I am disappointed that there was nothing on the NPA front, I expected something more drastic,” Mr Harihar added.

As of 09.40 a.m., the sub-index of banking stocks traded 3.5 per cent higher as compared to a 0.9 per cent decline in the broader Nifty.