PSU Banks to Benefit from Potential $4 Billion Inflows
Recent analysis indicates that public sector banks (PSU banks) in India could experience significant growth in investment if the foreign institutional investment (FII) limit is raised from 20% to 49%. According to Nuvama Institutional Equities, this change could lead to passive inflows of up to $4 billion across major state-run banks.
Projected Inflows from Increased FII Limits
– Estimate of Inflows: Nuvama reports potential MSCI-related inflows of approximately $3.98 billion across six key PSU banks:
– State Bank of India (SBI): $2,203 million
– Bank of Baroda: $362 million
– Punjab National Bank (PNB): $355 million
– Indian Bank: $459 million
– Canara Bank: $305 million
– Union Bank of India: $294 million
– Market Rally Potential: A hike in the FII limit could prompt market rallies, with PSU banks potentially increasing by 20-30% due to the anticipation of large inflows.
Current Holdings and Future Expectations
As it stands, FII holdings in PSU banks currently range between 4.5% and 12%, suggesting the existing limit is underutilized. Even a smaller increase, to 26%, could result in passive inflows of around $1.2 billion among these banks. Nuvama estimates the following potential inflows if this intermediate limit is implemented:
– State Bank of India: $579 million
– Indian Bank: $274 million
– Bank of Baroda: $99 million
– Punjab National Bank: $94 million
– Canara Bank: $78 million
– Union Bank of India: $70 million
Regulatory Context and Market Reactions
This analysis comes on the heels of a Reuters report discussing a government proposal to allow foreign investors to hold up to 49% in public sector banks, aligning their ownership rules more closely with those for private banks, where 74% foreign ownership is permitted. The news has already led to positive stock movements for PSU banks, with notable gains in share prices:
– SBI: +1% to ₹936
– Bank of Baroda: +1% to ₹277
– Canara Bank: +2% to ₹132
– Indian Bank: +3.3% to ₹854
– Union Bank: +2% to ₹148
Conclusion
Overall, an increase in the FII limit holds transformative potential for PSU banks, possibly reshaping the investment landscape in India. The anticipation of these inflows could boost bank valuations in the short term, making it essential for investors to watch how this proposal unfolds in the coming quarters.