Banks were the frontrunners on the bourses early today as investors were deeming their valuations offered a chance for appreciation.

Major banks were all upstream today including Punjab National Bank (up 3.67% to Rs 154.10), Oriental Bank of Commerce (up 3.79% to Rs 138.40), Andhra Bank (up 3.28% to Rs 31.50), Bank of India (up 3.09% to Rs 50.05), Bank of Baroda (up 3.25% to Rs 107.90), Dena Bank (up 2.69% to Rs 17.20), Syndicate Bank (up 3.31% to Rs 23.40), Vijaya Bank (up 2.86% to Rs 19.80) and Canara Bank (up 2.30% to Rs (95.50).

Among private sector banks, Bank of Punjab (up 4.71% to Rs 21.10), Centurion Bank (up 2.49% to Rs 11.10), J&K Bank (up 2.13% to Rs 233), Bank of Rajasthan (up 2.35% to Rs 21.80) and Karnataka Bank (up 1.93% to Rs 74) moved strong.

Dealers now feel that banks are in an oversold position, following market apprehension that the government would begin to charge a premium on returned government equity by banks. Many banks have been proposing to return or have returned government-held equity in them. This was a major propellant for bank stocks earlier .

But apart from the premium on returned equity apprehension, banks, of late, were also worried by the Securities and Exchange Board of India (Sebi)'s probe into the abnormal movement, over the past several weeks, of public sector bank stocks. The six banking PSUs currently under the Sebi scanner are Punjab National Bank, Indian Overseas Bank, Andhra Bank, Bank of India, Bank of Baroda and Corporation Bank

Meanwhile, analysts view the banking sector as one with huge potential. Current performances by most banks have vindicated that reckoning. Market players had been shifting to bank stocks to enhance their investment portfolios since late last year. Banks have for long been lowly valued, but with prospects looking impressive, there has been huge interest in them.

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.