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Bank shares show signs of shining

Equity investors’ appetite for investing in bank shares is not very high. Mutual fund houses, of late, have become major investors in bank shares. According to the latest data available with market regulator, SEBI, total investments of mutual funds in bank shares have crossed the level of Rs 48,419 crore as on 31 May 2014. This is equivalent to 21.6 per cent of their total equity assets of Rs 2.24 lakh crore under management (AUM).

    There was a time when the small private banks were reluctant to sell mutual funds, fearing that there could be diversion of their customers’ deposits into mutual funds. Now, most of these banks sell mutual fund products to earn additional income. As a result, the total volume of funds managed by mutual funds has crossed Rs 10 lakh crore. The Banking Index (Bankex) has risen by 15 per cent in May this year, while the Sensex, rose eight per cent.  The total volume of investments in bank shares is expected to increase substantially in the near future as the largest owner of bank shares, the Government of India (GOI) is likely to reduce its shareholding in public sector banks. It is also not likely to infuse additional capital to these banks, which are required to increase their capital adequacy ratios in compliance with the new Basel norms.  Altogether, the public sector banks have about 60 per cent of capital owned by the GOI. If it is decided to reduce the government’s share to 51 per cent, the bank staff has to be induced to own shares of the respective banks.

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