Shares of PSU banks outperformed the broader markets today after the government signaled that it is ready to allow lenders raise funds from the market to meet their capital needs.
The CNX PSU bank index rose nearly 1 per cent as compared to 0.75 per cent gain in Nifty.
Among frontline PSU banks Bank of Baroda, PNB and SBI rose nearly 1 per cent while OBC and Bank of India gained nearly 1.5 per cent.
In another measure, the government approved appointment of nine Executive Directors (EDs) in various public sector banks, including Bank of Baroda, Bank of India and Canara Bank.
The government on Wednesday said it has limited fiscal space to recapitalise PSU banks and they can raise funds from the market to meet their capital needs. "The government doesn't have space to give Rs 20,000 crore or 25,000 crore (for capital infusion) ... If banks require further capital they have other means to raise capital including from raising capital from market," Financial Services Secretary Hasmukh Adhia said.
In Budget, Finance Minister Arun Jaitley had proposed infusing Rs 7,940 crore funds next fiscal in the public sector banks to enable them maintain adequate capital.
In December 2014, the government had allowed PSU banks to raise funds from markets by diluting government holding to 52 per cent. Government's holding in 27 state-run banks range between 56 per cent to 84 per cent.
Public sector banks require Rs 2.40 lakh crore capital by 2018 to meet global Basel III norms. (With Agency Inputs)
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