Public sector banks are likely to remain in focus ahead of the Budget 2022 announcement on 1 February. The PSU banks are expecting an increase in the Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) limit sector, Mohit Ralhan, Chief Investment Officer and Managing Partner at TIW Private Equity said.  

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“The biggest expectation is that the budget will announce an increase in FDI and FPI limits as applicable for PSU banks. The government has been encouraging the PSU banks to raise capital from the market and it looks like a logical step forward so that the PSU banks can raise private capital more freely,” Ralhan said.  

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“Apart from the overall positive developments and expectations in the banking sector, the rally in PSU banks has also been supported by a likely increase in Foreign Direct Investment limits that the government may announce in the upcoming budget,” the CIO and Managing Partner said.  

The asset quality has been steadily improving and the risk of new stress formation is lower, he further said.  “Also, the provisioning cycle should turn in favour of banks. The NIMs may increase in a scenario of increasing policy rates which looks a high possibility now given the sustainable economic growth and rise in interest rates globally,” he further said.  

Public sector banks in India have their task cut out over the next few years, to fund India’s capital expenditure cycle, Tanushree Banerjee, Co-Head of Research, Equitymaster said. 

“The PSU banks are also expected to have the worst of the NPA cycle behind them. So, the recent rally in the stocks takes a possible upturn in the earnings and asset quality of the PSU banks,” she further said