Banking PSU stocks were hurt today following reports that the finance ministry has asked Sebi to investigate the matter of abnormal movements in these stocks.

A clutch of these stocks declined today - Dena Bank (down 5.41% to Rs 17.50), Vijaya Bank (down 5.14% to Rs 20.30), Syndicate Bank (down 4.32% to Rs 23.25), Union Bank (down 3.67% to Rs 34.15), Andhra Bank (down 3.28% to Rs 30.95), PNB (down 3.26% to Rs 145.35), Allahabad Bank (down 3.23% to Rs 17.95), Canara Bank (down 3% to Rs 100.20), Bank of Baroda (down 2.92% to Rs 103.20), Bank of India (down 2.83% to Rs 48.05) and Oriental Bank of Commerce (down 2.70% to Rs 131.50).

In the six sessions between 30 May and 9 June 2003, the segment Banks- Public Sector lost Rs 1,697.29 crore or 3.55% to Rs 46,020.61 crore in market capitalisation. Prior to that, bank stocks were propelled higher as many banks were contemplating equity reduction through return of government capital. Between 30 April and 30 May 2003, the 17 listed banking PSUs added Rs 11,653.4 crore or 32.3% to Rs 47,717.9 crore in terms of market capitalisation.

Players, especially operators, are now  moving out of banking PSU stocks. This is why almost all banking PSU stocks are trading in negative territory today.

Earlier, these stocks witnessed selling over a cloud of unclarity over whether the government would continue to take back equity at par. Until the `premium or par' issue is resolved by the Centre, gains in banking stocks will be limited as a result of cautiousness by players in taking positions in banking stocks.

Bank stocks were in a rush upwards of late as many banking PSUs were contemplating equity reduction through return of government capital. An added incentive for acquiring banking PSU stocks was their low valuation.

Analysts view the sector as one with huge potential. Current performances by most banks have vindicated that reckoning. Over the past six months, market players have been shifting to bank stocks to enhance their investment portfolios. Banks have for long been lowly valued, but, with prospects looking impressive there has been huge interest in them.

Results from the PSU banking sector have been impressive so far. On an aggregate, seven banking PSUs recorded a 76% rise in net profit to Rs 1,145.72 crore (Rs 649.82 crore) on a 34% increase in net total income to Rs 4,661.64 crore (Rs 3,484.36 crore).

It was the Securitisation Act that firmly brought market attention to bank stocks. The Securitisation Act allows lenders to attach assets of defaulting borrowers without having to go to court for the purpose. The Act paves the way for the setting up of asset reconstruction companies (ARCs) to recover non-performing assets (NPAs). Hitherto, archaic laws, tilted in favour of borrowers, made recovery of debts a difficult task for banks and financial institutions. Any recovery of debt should now enable banks to boost bottom lines, it is reckoned.