Government bank stocks crash 6% today: What's the reason?
What's the story
Shares of public sector banks (PSBs) have witnessed a sharp decline today. The fall comes after the Indian government clarified that it is not considering a proposal to raise the foreign direct investment (FDI) limit in PSBs. Indian Bank led the decline with a 6% drop in its share price, while other major players like Punjab National Bank and Bank of India also saw their shares fall by up to 2%.
Market reaction
Nifty PSU Bank index mirrors market downturn
The Nifty PSU Bank index, a key indicator of the performance of public sector banks in India, also reflected the market downturn. It fell 3% to an intraday low of 8,264, nearly 5% lower than its recent peak of 8,665. This widespread decline across all constituents further highlights the impact of government clarification on investor sentiment toward PSB stocks.
Speculation impact
Government's stance on FDI limit sparks market speculation
In October, reports had suggested that the government was considering raising the FDI limit in PSBs from 20% to 49%. This speculation led to a massive rally in PSU bank stocks and pushed the Nifty PSU Bank index to record highs. However, Minister of State for Finance Pankaj Chaudhary clarified yesterday that no such proposal is under consideration by the government.
Shareholding details
Government's clarification on shareholding
Chaudhary also clarified the Centre's shareholding in 12 PSBs has not come down since 2020. He added that while number of stocks held by the government hasn't changed, its percentage shareholding has come down in some banks due to capital raised through fresh share issuances.