 "Public sector banks rally as the govt plans to improve risk management")
Reports suggest the government is looking at taking steps including strengthening of risk management, appointment of bank chiefs for longer tenures, separation of posts, and better quality of nominee and independent directors.
The finance ministry has also asked banks to prepare a list of large borrowers with heavy debt, so that these borrowers can be asked to sell off their non-core assets to reduce debt and increase equity.
Although the government on its part is taking proactive steps to address these issues, experts feel the impact will only be visible in the long-term and investors should not expect how banks function to change overnight. However, they do agree that the steps are in the right direction.
Vaibhav Sanghavi, director (equities) at Ambit Investment Advisors, says: "Professionalising banks is a good move on the part of the government, as it will result in an improved performance and will drive in more efficiency. The markets took note of this development on Thursday. However, one must realise that this is a long-drawn process and nothing is going to happen overnight. The proposals will take time to get implemented."
Of late, the banking sector has been in news with reports of alleged scams involving PSU banks. According to recent reports, the Union finance ministry has unearthed scams to the tune of Rs 436 crore involving Mumbai-based branches of Oriental Bank of Commerce (OBC) and Dena Bank.
This is the second instance in less than a month when a PSU bank was found being involved in a scam. Earlier this month, the Central Bureau of Investigation arrested S K Jain, chairman and managing director of Syndicate Bank, along with five others for allegedly accepting bribes from private companies to extend them credit facilities.
"The recent scams in the PSU banks are showing the kind of rot we have in the banking system. Till things are good, we keep pushing all this under the carpet and we have seen such things in the past as well," said Daljeet S Kohli, head of research at IndiaNivesh Securities.
Among individual stocks, top gainers Union Bank of India, Bank of India, Punjab National Bank (PNB) and Allahabad Bank moved up between three per cent and eight per cent on the NSE on Thursday. OBC and Dena Bank, which lost nearly three per cent each a day earlier as fallout of the news report, recouped most of their losses and moved up 2.9 per cent and 2.5 per cent, respectively.
Although the markets did punish these controversy-ridden stocks, analysts feel that with the economy on the mend and the markets looking up, one can invest in the banking space, especially the PSU lot.
Says Vaibhav Agrawal, vice-president (research - banking) at Angel Broking: "There has been a clarification by the chairman of OBC that the amount involved is Rs 70 crore for their bank and they expect to recover a good part of that as well. In any case, I don't expect any material long lasting impact on the stock price as a result of this."
He suggests that valuations of PSU banking stocks are still attractive and if someone wants to play the growth revival story, these stocks could be good bets. He likes almost all the banks right now and expects most PSU banks to appreciate between 20 per cent and 30 per cent from their current levels over the next six months.