Good potential in banking stocks

Indian Banking sector is going to see re-rating & there will be good demand for PSBs & one can safely assume good returns from the banking sector investments.

The Finance Ministry today said it will provide equity support of about Rs.8,700 Cr to the public sector banks, a move that will enable lenders to raise funds from the capital market without diluting the government holding to below 51%.

Next tranche of the capital infusion in the banks will be to raise government's holding in the public sector banks to certain level, So that at time when GOI is not in a position to fund them through budgetary resources they will be in position to go to the market and raise resources to beef up their Tier I position.

The government is also conscious of Basel III requirement where addition Tier I capital has been prescribed. The government will look at those banks where government's holding is at minimum at 51%.

In the first tranche the government has approved capital infusion of Rs 6,211 Cr in the five public sector banks announced in June this year.
Finance Minister Pranab Mukherjee in his budget speech this year announced that the government planned a capital support of Rs 15,000 Cr to public sector banks during the current fiscal to ensure that these entities could attain a minimum 8% tier-I capital by March 31, 2011.

As much as Rs 8,789 crore would be part of second tranche.

There are 6 public sector banks - Bank of Baroda, Oriental Bank of Commerce, Andhra Bank , Dena Bank, IDBI Bank and Vijaya Bank where the government holding is less than 55%.

The Centre's holding in these 6 PSBs:

- Bank of Baroda stands at 53.8%,

- Oriental Bank of Commerce at 51.1%

- Andhra Bank at 51.6%

- IDBI Bank at 52.7%

- Dena Bank at 51.2%

- Vijaya Bank at 53.9%.

Also it is learnt that the Government is examining State Bank of India's proposal of Rs 20,000 crore rights issue.