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Despite the banking index falling over two per cent, select small- and mid-cap private sector bank stocks gained on the BSE on hopes of becoming acquisition targets of foreign banks.
Shares of Karnataka Bank, Lakshmi Vilas Bank, Karur Vysya Bank, City Union Bank and South India Bank jumped between 2.5 per cent and 8 per cent in early trade. However, the broad weak trend in afternoon trade impacted these shares, too.
Karnataka Bank closed with a minor gain of 0.70 per cent, Lakshmi Vilas Bank 0.60 per cent and Karur Vysya Bank posted a gain of 0.14 per cent over the previous day’s close.
The S&P BSE Banking index crashed 2.11 per cent at 12,619, while the BSE Sensex was weaker by 0.35 per cent at 20,823 points.
The gain in small- and mid-cap banks comes a day after the RBI announced guidelines for foreign banks that will give them near-national treatment and the benefit of buying stakes in domestic banks.
On Wednesday, the RBI announced the framework for setting up of wholly-owned subsidiaries by foreign banks in India. It also said that foreign banks would only be allowed to buy a domestic private sector lender after a review of the overall extent of foreign bank penetration.
“Though these bank stocks have risen on the news of being acquisition targets for foreign banks, the impact of the RBI guidelines to materialise is a few years away,” said Hatim Broachwala, Banking Analyst at Karvy.
“Considering that foreign banks are also not doing well, the acquisition plans could be some time away for them. Hence, the future of the final framework and the foreign banks’ healthy presence would be the deciding factors for valuations,” Broachwala said.
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