Bank stocks were the subject of a broadbased surge on Tuesday in continuation of the new-found vigour in the sector after the passage of the Securitisation Bill in November 2002.
In fact, it was the public sector banks that led the rally today. Top gainers were Indian Overseas Bank (up 7% to Rs 19.20), Canara Bank (up 6.7% to Rs 62.75), Andhra Bank (up 6.1% to Rs 28.70), Corporation Bank (up 6.2% to Rs 157.05), Dena Bank (up 5.7% to Rs 17.35) and Union Bank of India (UBI) (up 3.6% to Rs 26.80).
Private sector banks were led by ICICI Bank (up 3% to Rs 148.15), Bank of Punjab (up 4.5% to Rs 15.95), Centurion Bank (up 4.4% to Rs 10.65), Karnataka Bank (up 3.6% to Rs 175.50) and J&K Bank (up 3.8% to Rs 125.25).
Public sector banks like UBI (2.4 million shares), Andhra Bank (1.92 million shares) and Canara Bank (1.79 million) were witness to heavy volumes, too.
Bank shares, especially that of public sector banks, have taken wings over the last few months amid high volumes. Both operators and funds are understood to be active in bank stocks.
Impressive Q3 net profits registered by both public and private sector banks are a major trigger for the surge. While public sector banks have reported a surge in net profit largely due to treasury gains, private sector banks have managed growth on the back of increase in core banking business viz advances. Increase in operating margins, too, have boosted the Q3 results of these banks.
On Monday, two public sector banks Canara Bank and Corporation Bank unveiled upbeat Q3 results. Canara Bank reported a net profit growth of 83% for the third quarter ended 31 December 2002 to Rs 291.72 crore (Rs 2.91 billion) on a 6% growth in interest income to Rs 1654.12 crore (Rs 16.54 billion). Canara Bank's strong Q3 showing was mainly backed by a higher rise in other income and lower operating cost.
For the quarter ended 31 December 2002, Corporation Bank turned out a jump of 66% in Q3 net profit to Rs 151.81 crore (Rs 1.51 billion) on the back of an 8% growth in income to Rs 539.50 crore (Rs 5.39 billion), contributed to mainly by interest income from investments which rose 21% to Rs 247.39 crore (Rs 2.47 billion).
Banks are also cutting deposit rates. Most state-run banks, which command a 70% share of the banking business in India, have already lowered deposit rates by 25 basis points since the beginning of January. On Monday, ICICI Bank and Corporation Bank cut deposit rates. SBI today annoucned a cut in deposit rates.
The rally in bank stocks was first triggered by the passage of the Securitisation Bill in Parliament on 22 November 2002. The bill paves the way for recovery of sticky loans of banks. On 22 November 2002, the Parliament cleared the Securitisation Bill. Lenders can now send notices to defaulters, giving them a period of 60 days to make payments over dues. If the borrowers fail to pay during this period, the bill allows lenders to take possession of defaulters' properties and also the personal properties of promoters/directors pledged with the bank.
The bill is a significant legislative initiative to address the malaise of mounting NPAs. Further, it paves the way for setting up of asset reconstruction companies to recover NPAs. Importantly, the bill has created the right environment for the lending business, according to analysts.