Budget 2019 allocates Rs 70,000 crore to PSU banks. Will banking sector funds gain?

Finance minister Nirmala Sitharaman announced this move to boost credit in the ailing PSU banks.

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Budget 2019 has proposed an additional push of Rs 70,000 crore to the public sector banks. The Nifty PSU Bank index went up 2.5 per cent after the announcement. Finance minister Nirmala Sitharaman announced this move to boost credit in the ailing PSU banks. Market participants admit that this is a larger-than-expected capital for these ailing banks and it will definitely improve their health. Does this mean that the returns from the banking sector funds will also go up?

Banking sector funds category are topping the return charts in the last one year with 16.43 per cent returns. “Having addressed legacy issues, public sector banks are now proposed to be further provided 70,000 crore capital to boost credit for a strong impetus to the economy,” said Nirmala Sitharaman, while presenting the budget 2019 in the Parliament today.

“To further improve ease of living, they will leverage technology, offering online personal loans and doorstep banking, and enabling customers of one public sector bank to access services across all public sector banks. In addition, government will initiate steps to empower accountholders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts. Reforms will also be undertaken to strengthen governance in public sector banks,” she added.

“The earlier capital infusion by the government was mostly used to deal with the NPA problem of the PSU Banks. However, this is a big amount. We are assuming that a large part of it will now be used for the growth of these banks,” says Amit Premchandani, fund manager, UTI Banking Fund.

The government will infuse Rs 70,000 capital infusion into PSU Banks which is likely to help them meet their minimum capital requirements and boost credit growth in the economy. “Banks like Corporation bank, Allahabad Bank, PNB, Union Bank of India, Andhra Bank and Syndicate Bank would get major chunk of the announced recap amount. This move also brings out rest banks which are in prompt corrective action of RBI also,” Rajiv Singh, CEO, Karvy Stock Broking.

However, the sops for PSU banks is unlikely to boost returns from the banking sector funds. Fund managers believe that most banking funds do not have a high allocation to PSU banks. “There are other problems in the PSU banks apart from lower capital. So, we don’t expect this move to turn the tables for them. On the other, the private sector banks are doing well. So, I don’t expect this to have an impact on the banking sector funds,"said Harsha Upadhyaya, CIO-equity, Kotak Mutual Fund.

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