The Reserve Bank of India (RBI) has withdrawn Rs 2,000 denomination notes from circulation, in line with its Clean Note Policy. However, they will continue to remain legal tender. According to analysts and economists, this move is positive for banks
On a net basis, due to Rs 2,000 withdrawal move, deposits are likely to increase by Rs 1.5-2 lakh crore. Durable liquidity could increase by around Rs 1 lakh crore depending on the behaviour of depositors. This should ease the credit-deposit ratio across banks, according to Kotak Mahindra Bank economists Upasna Bhardwaj and Anurag Balajee
According to Bank of Baroda Research, following the withdrawal of Rs 2,000 notes, bank deposits in FY24 can range between Rs 202-204 lakh crore, compared to Rs 201 lakh crore estimated earlier. Banks will be flushed with liquidity which can then be deployed either for lending or for investment purposes, it said
As per Kotak Mahindra Bank analysts, those Rs 2,000 notes which are not deposited by individuals in banks, could move to high-value spends like gold/jewellery, consumer durables, and real estate, and will eventually find their way and reach bank deposits
Several market analysts believe that the RBI’s move to withdraw Rs 2,000 notes from circulation is going to increase liquidity in the banking sector, particularly in PSU banks as most of the Rs 2,000 notes are expected from tier-2 and tier-3 cities
“Due to higher liquidity in the wake of Rs 2,000 note deposits, PSU banks’ credit growth may improve and hence we can expect improvement in the margins of PSU banks in upcoming quarters,” said Anuj Gupta, Vice President - Research at IIFL Securities
According to Chandan Taparia, Derivative & Technical Analyst at Motilal Oswal Financial Services, withdrawal of Rs 2,000 notes is expected to benefit PSU banks most as the majority of Rs 2,000 notes deposits are expected from tier-2 and tier-3 cities. "In these cities, PSU banks have more exposure than the private lenders and hence liquidity of the PSU banks are expected to leapfrog on this domestic trigger,” he said
According to market analysts, investors should look at those PSU bank shares that have delivered strong Q4 numbers. One can look at SBI, Bank of Baroda, PNB, Canara Bank, Bank of Maharashtra, Punjab & Sind Bank, and Bank of India stocks
Prabhudas Lilladher has a buy rating on SBI shares with a price target of Rs 770. This translates to an upside of 32%, compared to Thursday's closing price of Rs 570
Motilal Oswal has a buy rating on Bank of Baroda stock with a price target of Rs 240. This implies an upside of 32% compared to Thursday's closing price of Rs 181
Brokerage firm JM Financial is bullish on Canara Bank and has set a target price of Rs 371. This implies an upside of around 24% compared to Thursday's closing price of Rs 299
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