New norms cheer bank scrips

Banks stocks gain substantially as equity markets cheered RBI's sops to PSU banks.

The market cheered the sops given by the Reserve Bank of India (RBI) to public sector banks, leading to big gains for bank stocks.

The Bank of Baroda scrip was the biggest gainer. The Bombay Stock Exchange (BSE) Bankex Index gained 1.30 per cent (32.96 points) to touch 2570.41 points, even as the benchmark Sensex gained only 0.38 per cent today.

The State Bank of India scrip ended the day 2.25 per cent higher at Rs 462.15, Punjab National Bank was up 2.75 per cent to Rs 277.05, and Oriental Bank of Commerce closed 2 per cent higher at Rs 237.80.

The Bank of Baroda scrip gained 6.72 per cent to close at Rs 174.80 today on the BSE. The Indian Overseas Bank scrip gained almost 5 per cent to Rs 48.45, Vijaya Bank gained 4 per cent to Rs 48.65, Corporation Bank 4 per cent to Rs 259.89 and Andhra Bank 3 per cent to Rs 46.20.

However, bankers are not satisfied with the relaxation announced by RBI on Thursday. According to a cross-section of bankers, the revised norms will not be able to protect banks from taking a hit in their bottomlines if interest rates inch up further. Bankers also said their second quarter (July-September) profits would be impacted.

The treasury head of a public sector bank said RBI allowed banks to shift securities held under the statutory liquidity ratio (SLR) portfolio to the 'held to maturity' category at the acquisition cost or the market value, whichever was lower.

Thus, a bank has to take a call on making the transfer only when the market price of the security dips below the purchase price. Therefore, there will be a depreciation in the books, which as per the new norms, will have to be provided for before the transfer, even if it is a one time hit in the books.