Steps taken by Government working in favour of PSU at Dalal street

Bank of Baroda led public sector banks substantially higher in trade on Monday even as overall markets posted losses after the government took major steps to address the growing problem of non-performing assets in the sector.

Briefly, the changes, announced after markets closed on Friday, are as under:

The Government announced a new driving team for 5 PSU banks, nominating a non-executive chairman and a managing director each from the private sector for these banks.

Therefore, Bank of Baroda, 58 percent controlled by the government, will now be headed by P S Jayakumar, formerly working for VBHC Value Homes. The bank will now have a non-Executive Chairman as well, the post being given to Ravi Venkatesan, an independent director on the board of software giant Infosys and the former head of Microsoft's global operations in India.

Coming back to the changes, a clutch of PSU banks received funds from the government to recapitalise their NPA-laden balance sheets. This funding is a part of the 70,000 crore rupees the government intends to funnel into these banks over the next four years. Fresh funds will also help PSU banks access capital from the markets.

A new panel is being set up to convert the government's holdings in PSU banks into a bank holding company that will focus of customer service and risk management.

``We believe that the reforms are well-thought and cover a broader range of aspects that can help improve performance of PSU banks in the longer-term,'' CLSA said in a recent report to investors.

ESOPs and performance bonuses will be given to outperformers.

These new steps stoked a fresh set of buying on the PSU banking space on a day when the overall markets were under sustained selling pressure.

As a consequence, Bank of Baroda surged 11 percent to 207.50 rupees.

Bank of India gained 6.9 percent to 182.20 rupees.

Canara Bank rose 6.9 percent to 328.30 rupees.

Union Bank jumped 3.5 percent to 216.10 rupees.

State Bank of India added 3.5 percent to 278.65 rupees.

And, Punjab National Bank was up 3.4 percent to 177.45 rupees.

Overall, 13 PSU banks trading on the Futures and options space rose between 1 percent and 11 percent. Their Open Interest gained 0.6 percent to 8.1 percent, signalling a build up of long positions in the sector.

(Image credits: Indiatimes)