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Banking shares gain; Nifty PSU Bank index up 2%

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The PSU Bank index has surged 20% as compared to 13% rise in Nifty Bank and 9% gain in Nifty50 index till now.

Early morning trade, banking shares of mainly public sector banks (PSB) were trading higher on the bourses after steep interest rate cuts on small savings schemes by the government.

State Bank of India (SBI), Punjab National Bank (PNB), IDBI Bank, Oriental Bank of Commerce, Allahabad Bank, Bank of India and Bank of Baroda were up more than 1% each on the National Stock Exchange (NSE).

At 10:33 AM, the Nifty PSU Bank index was up 1.8% as compared to a less than 1% rise in the Nifty50 index and Nifty Bank index.

The small saving schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patras will fetch up to 90 basis points lower returns during the April- June quarter. The interest rate on PPF scheme will be cut to 8.1% for the period April 1 to June 30, from 8.7%, at present.

According to Angel Broking, this is a very positive step for the banks as the deposit rates by the banks will be reduced accordingly which will ensure a reduction in the lending rate.

In a client note, the broking firm said, “We expect nearly 100 basis points cut in the bank’s base rate over FY2017 and this could lead to a positive impact for all the rate sensitive sectors”.

One basis point is a hundredth of a percentage point.

In the meantime, the PSU Bank index outperformed the market by gaining 20% as compared to 13% rise in Nifty Bank and 9% gain in Nifty50 index so far in March 2016.

Paul

The author Paul