- Date : 22/06/2023
- Read: 3 mins
RBI's decision to withdraw Rs. 2000 notes will benefit PSU banks with increased deposits and credit growth, while the stock market expects positive momentum for bank shares.
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The withdrawal of Rs. 2,000 notes will lead to a large volume of deposits in banks.
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PSU banks can benefit if the deposits are higher in smaller towns and cities.
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Stock prices in banking can go on a short-term surge due to this move.
The withdrawal of Rs. 2000 notes by the Reserve Bank of India (RBI) will have multiple effects on the economy, including the impact on Public Sector Undertaking (PSU) bank shares. With 10.8% of currency notes vanishing from circulation, certain businesses and payments will be affected in the short term. However, banks expect to receive the entire amount of Rs. 3.62 lakh crores primarily as deposits, leading to a substantial increase in their reserves over the next four months.
Also Read: RBI's Rs. 2000 note withdrawal: how it impacts you and the economy
Effect on banks
With urban India moving towards a cashless economy, it is assumed that a bulk of the 2000 rupee notes will be collected by citizens from tier-2 and tier-3 cities. While exchanging these notes for various denominations remains an option, it is evident that individuals will also opt to deposit these notes into their bank accounts.
The Rs. 2000 notes’ withdrawal by RBI is likely to increase the liquidity of the banks. Given the stronger presence of PSU banks in suburban and rural India, they are expected to be the bigger beneficiaries of this move.
Higher deposits in PSU banks are expected to drive credit growth, resulting in improved margins and stronger financial performance in the upcoming quarters.
Also Read: The hidden agenda behind the withdrawal of Rs. 2000 notes revealed!
Stock market expectations
The Bank Nifty index closed at 44,000 last week, but according to Chandan Taparia of Motilal Oswal, it is expected to reach 45,000 in the near term and surpass the 47,000 milestone by September of this year. Experts tip PSU bank shares, including SBI, Bank of Baroda, PNB, Bank of India, Canara Bank, Punjab and Sind Bank, and Bank of Maharashtra, to remain positive in the stock market. These major PSU banks have reported favourable Q4 results, making them attractive options for investors as a response to the latest RBI news.
The increased deposit growth and lower cost of funds are expected to boost PSU stock prices in the days to come. However, customers would subsequently withdraw from their deposits, which would make this sudden deposit growth short-lived.
Positional traders are expected to keep the PSU bank sector on their buy or sell stocks watchlist. Nevertheless, this should not be the sole criterion for investing in PSU bank stocks. In order to make informed investment decisions, a detailed analysis of shortlisted shares is imperative. Financial performance, growth prospects, management competence, market trends, and overall economic conditions should all be taken into account.
Related: Are PSU and corporate bond mutual funds really 100% risk-free?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
