State Bank of India garnered the interest of institutions on Monday as the market expects significant relief for the banking sector in the forthcoming budget.

The stock of India's largest commercial bank lifted 1.41% to Rs 315.40 by 12:00 IST. Substantial volumes of over 960,000 shares were recorded on the counter. Optimism has been quite high in SBI of late, what with the stock gaining 15.11% to its current level from Rs 273.90 on 31 Janaury 2003.

The market says that speculative buying is pushing the SBI stock as of now. Institutions, too, are accumulating.

In contrast, Life Insurance Corporation is believed to be selling on the counter.

Budgetary expectations have prompted a firm trend in SBI and other PSU bank stocks of late. Last week, there were reports that the government had decided to exclude the Global Depository Receipts holding of 7.65% from the ceiling of 20% for foreign institutional investors in the state-run bank. Currently, the limit for FIIs in SBI stands exhausted as they hold a 19.63% stake (as per the shareholding pattern of the bank on 31 December 2002).

There were reports too that the government may raise the cap for FIIs in public sector banks to 49% from the current 20%. The announcement to this effect is likely to be made in the Union Budget 2003-04.

Among the long list of expectations of the banking sector from the forthcoming Union Budget are the exemption of dividend tax completely - neither the bank nor the recipient to be taxed, higher tax break for provisioning of bad loans, sops for corporate debt restructuring in steel, textiles and chemicals etc. to reduce NPAs and increase in exposure limits to capital markets from 5% of incremental deposits to 8-10% to improve credit flow to capital of markets.

Meanwhile, analysts say the banking sector is poised to grow in line with the growth in the economy. Their balance sheets are getting cleaned up at a faster pace now than earlier. Also interest rates are likely to remain soft thus helping banks to reduce cost of funds and earn higher treasury gains, the recent fall in their prices notwithstanding. Any reduction in corporate tax rates or surcharges will also benefit banks as they are largest tax payers. Abolition of tax on dividend will also make banks more attractive as banks in general offer higher dividend yields. A further move towards simplified FDI norms will improve the valuations of PSU banks. Therefore, analysts expect the bullish trend in bank stocks to continue, as valuations remain attractive in the current year.

Andhra Bank (up 6.30% to Rs 31.20), Canara Bank (up 4.01% to Rs 69.95), Oriental Bank of Commerce (up 2.90% to Rs 62.05), PNB (up 1.93% to Rs 89.80), Union Bank (up 2.32% to Rs 26.50), Bank of India (up 1.86% to Rs 38.30) and Corporation Bank (up 1.57% to Rs 149) were the other major gainers among bank stocks on Monday.

For Q3 ended 31 December 2002, SBI recorded a 28% growth in net profit to Rs 787.05 crore (Rs 7.87 billion). Net revenues jumped by 18% to Rs 3,756.93 crore (Rs 37.56 billion). For the nine months ended 31 December 2002, its net interest income recorded a 7% rise to Rs 7,210.20 crore (Rs 72.1 billion), mainly due to an increase in interest income by 4% to Rs 23,066.35 crore (Rs 23.06 billion). Net profit stood at Rs 2367.45 crore (Rs 23.67 billion), up 30%

BSE code: 500112