Public sector banks shone in a muted market on Wednesday, July 16, after reports suggested that the Centre might look towards a fresh round of reforms for the financial sector.
According to CNBC-TV18, sources stated that additional consolidation among public lenders remains a possibility, as the government looks to create larger banking institutions capable of supporting the credit demands of a rapidly expanding economy.
At 12.50 p.m., the Nifty PSU Bank index rallied 1.5 percent, with Punjab & Sind Bank, State Bank of India, and Punjab National Bank leading the gains, soaring up to 2.6 percent. None of the shares of the 12 index constituents reported any losses.
Further, there is also a proposal which is under consideration to raise the current 20 percent limit on foreign ownership in PSU banks. This move will help to draw long-term investors towards the banks, while also broadening the capital base of these lenders.
Additionally, the sources suggested that the Centre may also allow large corporates into the banking space, with the additional of guardrails and strong frameworks, along with RBI's oversight. Some of these safeguards could be adding a limit to corporate shareholding in banks, or making sure that the bank's capital is not use to self-fund the corporate, or allowing large NBFCs to upgrade to commercial banks.
As of the June quarter, four public sector banks, which are UCO Bank, Indian Overseas Bank, Punjab & Sind Bank, and Central Bank of India, had government shareholding levels exceeding 90 percent.
In 2019, the government initiated a large-scale consolidation drive in the PSU banking space, merging 10 public sector lenders into four larger entities.
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