The Indian PSU Bank Index witnessed positive momentum from January 1, 2018 to January 24, 2018. Nifty PSU Bank Index gained 7.8% in the aforementioned period. However, with the announcement of recapitalization reforms followed by NPA reforms, the dark days of PSU banks began. Moreover, the nail in the coffin was the emergence of PNB’s ~Rs11,600cr fraud. The sector witnessed a significant slump of 15.1% (between January 25-February 16, 2018).
Story in numbers
Exhibit 1: Performance of PSU Stocks over January 1 – 24, 2018
| Stock | Price as on Jan 1 2018 | Price as on Jan 24 2018 | Gain/(Loss) % |
| Punjab National Bank | 169.8 | 194.7 | 14.7 |
| Bank Of Baroda | 161.5 | 178.4 | 10.4 |
| IDBI Bank Ltd. | 60.4 | 65.4 | 8.3 |
| State Bank Of India | 307.1 | 329.9 | 7.4 |
| Indian Bank | 377.2 | 403.1 | 6.9 |
| Oriental Bank Of Commerce | 121.9 | 129.5 | 6.2 |
| Canara Bank | 360.7 | 379.3 | 5.1 |
| Syndicate Bank | 79.8 | 82.3 | 3.2 |
| Union Bank Of India | 144.9 | 148.9 | 2.8 |
| Bank Of India | 169.9 | 172.5 | 1.5 |
| Andhra Bank | 58.4 | 58.8 | 0.7 |
| Allahabad Bank | 73.8 | 73.1 | (0.9) |
The government announced on January 24, 2018 about the recapitalization plans i.e. of infusing Rs88,139cr capital in 20 public sector banks before March 31, 2018. Under the recapitalization plan Rs52,300cr will be given to the weaker banks and the remaining amount will be received by healthier banks. This move was, however, in contrast to market expectations, as per the media reports. Hence, the PSU Bank Index witnessed a fall the very next day of this announcement. The icing on the cake was the RBI’s announcement of new rules for recognition of stressed assets by commercial banks.
RBI has also withdrawn the existing mechanism which included Strategic Debt Restructuring Scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A) and Corporate Debt Restructuring Scheme, The Joint Lenders’ Forum (JLF), as an institutional mechanism for resolution of stressed accounts also stands discontinued.
PNB’s declaration of ~Rs11,600cr fraud against jeweller Nirav Modi dragged the performance of Nifty PSU Bank index. Nifty PSU Bank Index was down 15.1% over January 25, 2018 - February 16, 2018.
Exhibit 2: Performance of PSU Stocks over January 25, 2018- February 16, 2018.
| Company Name | Price as on Jan 25, 2018 | Price as on Feb 16, 2018 | (Loss) % |
| Punjab National Bank | 180.9 | 125.6 | (30.6) |
| Bank Of India | 169.4 | 130.5 | (23.0) |
| Syndicate Bank | 76.7 | 59.6 | (22.3) |
| Allahabad Bank | 70.1 | 54.9 | (21.8) |
| Andhra Bank | 55.9 | 46.6 | (16.6) |
| Union Bank Of India | 141.8 | 118.4 | (16.5) |
| Canara Bank | 361.4 | 307.5 | (14.9) |
| Oriental Bank Of Commerce | 123.2 | 105.6 | (14.3) |
| State Bank Of India | 313.2 | 271.7 | (13.3) |
| Indian Bank | 377.8 | 337.0 | (10.8) |
| Bank Of Baroda | 167.2 | 152.4 | (8.8) |
| IDBI Bank Ltd. | 65.1 | 61.8 | (5.1) |
Exhibit 3: Performance of PSU Stocks over January 01, 2018- February 16, 2018.
| Stock | Price as on Jan 1 2018 | Price as on Feb 16, 2018 | Gain/ (Loss) % |
| Punjab National Bank | 169.8 | 125.6 | (26.0) |
| Allahabad Bank | 73.8 | 54.9 | (25.6) |
| Syndicate Bank | 79.8 | 59.6 | (25.3) |
| Bank Of India | 169.9 | 130.5 | (23.2) |
| Andhra Bank | 58.4 | 46.6 | (20.2) |
| Union Bank Of India | 144.9 | 118.4 | (18.3) |
| Canara Bank | 360.7 | 307.5 | (14.7) |
| Oriental Bank Of Commerce | 121.9 | 105.6 | (13.4) |
| State Bank Of India | 307.1 | 271.7 | (11.5) |
| Indian Bank | 377.2 | 337 | (10.6) |
| Bank Of Baroda | 161.5 | 152.4 | (5.6) |
| IDBI Bank Ltd. | 60.4 | 61.8 | 2.4 |
New norms on bad loans are likely to result in an increase in credit provisioning. In addition, it is expected to have a detrimental impact on balance sheet of the PSU banks in the coming quarters. Further, PNB’s fraud has entangled various other PSU banks leading to a significant down trend in the stocks under PSU Bank Index. The magnanimity of the PNB scam has put creditability of the PSU banks at stake.
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