A sharp sell-off continued in PSU bank stocks following their recent Qualified Institutional Placement (QIP) fundraising exercise. Three out of the four state-run lenders that concluded their fundraising last week saw significant stock declines for multiple trading sessions.

• Central Bank of India shares dropped by 9.5% on April 2, extending losses from 3.4% on Tuesday and 2.7% on Friday.

• Punjab and Sind Bank fell another 6.25% on Wednesday after plunging 20% on Tuesday and another 2.5% last Friday.

• Indian Overseas Bank (IOB) slid 4.5%, marking its sixth consecutive session of decline since the QIP event.

Breakdown of QIP Fundraising by PSU Banks

Four major public sector banks raised capital via QIP to meet Minimum Public Shareholding (MPS) norms, as their government shareholding exceeded 90%. Here’s how much each bank raised and LIC’s investment in them:

LIC invested nearly 25% of the total funds raised by these PSU banks, further strengthening its presence in India's banking sector.

State-Run Banks Investing in Each Other

Interestingly, some of these PSU banks have also issued shares to their fellow state-run lenders during the QIP fundraising exercise:

• Punjab and Sind Bank issued shares to Central Bank of India and Indian Overseas Bank.

• Central Bank of India issued shares to Punjab National Bank (PNB), Canara Bank, and Bank of Baroda.

This strategy indicates a unique cross-holding structure among public sector banks as they work towards achieving the MPS compliance mandate.

Market Reaction and Stock Performance

The PSU bank stocks are currently trading below their QIP issue price, leading to concerns among investors. As of April 2:

• Central Bank of India’s stock is down 9.5% at ₹37.4.

• Punjab and Sind Bank has declined 6.5% to ₹32.55.

• Indian Overseas Bank is trading 4.4% lower at ₹36.03.

The sustained negative sentiment in these stocks raises concerns about short-term recovery, as institutional investors remain cautious.

Why Are PSU Bank Stocks Falling?

Several factors have contributed to the steep correction in PSU bank stocks post-QIP:

1. Dilution Concerns: Investors worry about the dilution effect of the QIP, as the increased supply of shares could pressure stock prices in the near term.

2. Market Sentiment: The broader banking sector has faced mixed sentiment, with concerns over rising NPAs and slower credit growth.

3. Profit Booking: Some early investors may have exited post-QIP, leading to increased selling pressure.

The Road Ahead for PSU Banks

Despite the current sell-off, public sector banks remain crucial players in India's banking ecosystem. Their fundraising efforts indicate a push towards MPS compliance, which could eventually improve liquidity and market participation in the long run.

Investors will closely watch any recovery signs in these stocks, especially as QIP funds get deployed and financial performance stabilizes.

Conclusion

The recent QIP-driven sell-off has led to a sharp decline in PSU bank stocks, with Central Bank of India, Punjab and Sind Bank, and Indian Overseas Bank facing significant losses. As these banks work towards meeting regulatory mandates, investors remain cautious, awaiting signs of price stabilization and long-term growth prospects.

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