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Demonetisation impact: PSB stocks cash in on currency purge

Chandan Kishore Kant & Abhijit lele / Mumbai 21 Nov 16 | 06:40 AM

The shares of public-sector banks (PSBs) have emerged the major gainers from demonetisation. At a time when benchmark indices have declined about five%, major state-owned banks’ stock prices have moved up six to 22%. 

For instance, the Union Bank of India stock has gained 21% since November 8, when Prime Minister Narendra Modi announced the decision to demonetise Rs 500 and  Rs 1,000 currency notes. It is followed by Bank of Baroda with 18.6% gains, Bank of India with 11.4%, while Canara Bank and State Bank of India have registered 10% increase in their scrips. 

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On the contrary, private-sector banks have a completely different picture on the stock exchanges. Nearly all major private lenders have lost share value since the demonetisation took off. 

For instance, IndusInd Bank cracked 9.24% followed by ICICI Bank, which registered a decline of 6.6%. HDFC Bank, Axis Bank, Kotak Mahindra Bank and YES Bank are all down three to 4%. 

Given the reach of state-owned banks in India’s hinterland where people tend to keep much more cash holdings than their urban counterparts, state lenders are witnessing high deposits at their branches. 

This is not only going to help them have higher deposits but also better their current and savings account, or Casa, ratio. 

According to PSB executives, the huge flow of deposits will bring down the cost of funds. As a consequence, banks will have room to cut lending rates as well, helping support demand for credit in the next few quarters. However, the demand for loans might dip in the near term as businesses and people grapple with the adverse effects of demonetisation. As much as Rs 5 lakh crore has already come into bank deposits since November 10. Even after taking into account the withdrawal and use of money in regular business, most of the funds would remain with banks, said a senior executive with Indian Banks’ Association.

In the long-term, more cash-based business activities would come into the banking system, said a State Bank of India executive. SBI's tally of low-cost deposits was 42.74% at the end of September 2016.


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