It's been bright times for banking sector stocks, ever since the passage of the Securitisation Act in November 2002.

And, on Thursday, both public sector and private sector bank stocks were caught in an upward spiral. These included ICICI Bank (up 2.95% to Rs 131), SBI (up 1.26% to Rs 306.50), Centurion Bank (up 13.07% to Rs 11.25), Bank of Baroda (up 10.79% to Rs 117.60), Global Trust Bank (up 7.43% to Rs 15.90), Federal Bank (up 6.25% to Rs 128.30), Karnataka Bank (up 5.96% to Rs 71.15), Bank of Punjab (up 5.83% to Rs 17.25), Canara Bank (up 4.24% to Rs 107.05), OBC (up 4.32% to Rs 129.25), Bank of India (up 2.81% to Rs 47.55) and IOB (up 3.86% to Rs 24.20).

Optimism seems to run high at the moment in the banking sector on a flush of positive developments. In fact, huge buying was witnessed in this sector over the last few sessions, with FIIs, in particular, pitching into these stocks in a major way.

Analysts view the sector as one with a huge potential. Current performances by most banks have vindicated that reckoning. Market players are now shifting to bank stocks from ailing tech sector stocks to enhance their investment portfolios. The tech sector, in turn, has been hurt by the global economic recession and the recent strength in the rupee.

Banks have for long been lowly valued, but, with prospects looking impressive, there is still an upside of 20-25% from their current levels, that have risen strongly over the past seven months.

It was the Securitisation Act that firmly brought market attention to bank stocks. The Securitisation Act allows lenders to attach assets of defaulting borrowers without having to go to court for the purpose. The Act paves the way for the setting up of asset reconstruction companies to recover non-performing assets. Hitherto, archaic laws, tilted in favour of borrowers, made recovery of debts a difficult task for banks and financial institutions. Any recovery of debt should now enable banks to boost bottom lines, it is reckoned.

Second-rung banking stocks like Federal Bank and Karnataka Bank were in the spotlight today for specific reasons - on expectations that these banks seem ripe for merger and acquisition activity as of now. Increased speculation over possible M&As was set off by Bank of Muscat's recent acquisition of 26% stake in Centurion Bank for Rs 75 crore. Now, all private sector banks seem likely targets for MNCs. The government had hiked foreign direct investment limit in private banks to 74% from 49% in the Union Budget for 2003-04.

But stocks in decline today included Punjab National Bank (down 2.80% to Rs 145.75), Corporation Bank (down 2% to Rs 166.40), J&K Bank (down 2.07% to Rs 194.10), and Union Bank (down 2.12% to Rs 32.35) largely on profit booking after a recent rise.

In the last one month, 35 public and private sector banks added Rs 6,209.97 crore (Rs 62.09 billion) or 11.2% in market capitalisation to Rs 61,816.84 crore (Rs 618.16 billion) from Rs 55,606.87 crore (Rs 556.06 billion)