Rally sparked by bad bank news unlikely to carry on

News reports suggest plans are afoot to form not one but three to four bad banks to resolve the loan mess. On hearing this, most public sector banks or PSBs fired up on Wednesday. The banks are the worst-hit by bad loans, hence they stand to benefit most from the move to create bad banks. At present, lack of self-sustainability and market share loss limit these PSBs’ ability to raise capital from markets. Against this backdrop, experts believe bad banks may take a lot of time to resolve the loan mess. As a result, the rally in PSB stocks could fizzle out soon.

*Data are as on March 31, 2017; share price rounded off; data for other banks are as on December 31, 2016; GNPA: gross non-performing assets; above list sorted in descending order of one-day change in share price. Source: Capitaline/Compiled by BS Research Bureau