The Hindu Business Line : Bank stocks in limelight

Bank stocks have witnessed an upward rally in the current week, riding on the hike in prime lending rates (PLR) by some banks and also the US Fed decision to keep the interest rate at 5.25 per cent.

The BSE Bankex index gained 5.95 per cent from its close on Friday to close at 5,056.99 points on Wednesday. Banking analysts attribute the rise in the stocks values to the increase in PLRs by banks following the hike in RBI reverse repo rates by the RBI last month.

"The Finance Ministry announced last week that banks should roll back PLR hike. However, the boards of banks have acted positively to allow the increase in PLR. Andhra Bank and Bank of Baroda went ahead with the hike in PLR. This will result in increase in margins of banks," said Mr Huzaifa Suaratwala, Banking Analyst, Emkay Share and Stock Brokers Ltd.

The increase in margins has affected the sentiment positively, said banking analysts. "Bank margins were under pressure due to an increase in the cost of funds, but post-PLR hike, the margin pressure should decline as the yields on loans have increased," said a banking analyst with a leading stock broking firm.

Centurion Bank of Punjab, ICICI Bank, Bank of India, Union Bank and SBI have been major gainers in the banks stocks segment.

US Fed decision

The decision by the US Fed to keep interest rates stable was another contributor to the upward rally of bank stocks. This will lead to stronger than expected credit growth in India, said banking analysts.

"Bank stocks have under-performed the markets for the past one year and their valuations have bottomed out. This has led to an interest among investors in bank stocks," Mr Vishal Goyal, Banking Analyst, Edelweiss.

The visibility in the hike in interest rate and the pausing of US Fed interest rate hike have been the riding factor in the gain of bank stocks.

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