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Banks up on capital boost
Mon, 14 Jun 11:30 am

After starting on a positive note the Indian indices have managed to hold on to the gains in early trades today. Key Asian markets are also in the green. Stocks from IT and metals space are witnessing strong buying interest while stocks from the auto and healthcare space are trading in flat to negative territory.

BSE-Sensex is trading up by 160 points while NSE-Nifty is trading up by 45 points. BSE-Midcap index is up by 0.7% while BSE-Smallcap index is trading up by 1%. The rupee is trading at 46.60 to the US dollar.

As per leading business daily, the government has approved equity infusion of Rs 62 bn in 5 public sector banks namely - Bank of Maharashtra, Central Bank, UCO Bank, IDBI Bank and Union Bank. As envisaged this will enable banks to attain tier – 1 capital of 8% by March 2011. The government will infuse Rs 5.9 bn in Bank of Maharashtra, Rs 3.75 bn in UCO bank, and Rs 1.11 bn in Union Bank of India through the preference shares route. Further it will infuse Rs 20.1 bn in Central Bank via the rights issue while Rs 31.1 bn will be infused in IDBI bank through preferential placement of equity. In the 2010-11 Union Budget, the government had planned equity infusion of Rs 165 bn in PSU banks to increase their Tier I capital. Equity infusion in these 5 PSU banks was thus a part of the recapitalization plan. Recapitalization of banks will enable them to lend more thereby giving a fillip to the overall economic activity.

IT stocks including Infosys, Wipro, and HCL Technologies are trading firm. This is probably on the back of the UK government's plan to cope with fiscal deficits and cut costs. The new leadership has to deal with a high 8% unemployment rate and needs to cut government spending by almost US$ 9 bn this year. The government is likely to establish shared service centers to outsource non-core back-office activities. For India's large IT offshoring firms this opportunity could be worth US$ 2-3 bn over the next few years. Some government departments including Revenue and Customs, Department of Work and Pensions and National Health Services have already piloted this concept in some form. Due to cost benefits and non-availability of specialized skills locally we expect more authorities to adopt this model.

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