National Stock Exchange's index for public sector bank surged over 4 per cent on reports that the government is working on holding company structure for recapitalisation of state-backed public sector banks.
State Bank of India surged over 4 per cent to Rs 2,648.9, whereas Punjab National Bank and Bank of Baroda rose over 3 per cent each.
PSU Banks are struggling under a pile of bad loans as the economy slowed sharply over the past two years. According to estimates, stressed loans in India - those categorised as bad and restructured - total $100 billion( nearly Rs 6 lakh crore), or about 10 per cent of all loans.
PJ Nayak committee recently suggested the government to reduce its holding in public banks to below 51 per cent and form a Bank Investment Company (BIC) and transfer its holding to BIC to ensure better management of these banks.
Reduction of government holding in public banks will help these banks to raise equity from open market, say analysts.