Bank stocks were very much in momentum today as worries over the price movement probe in public sector banks and the issue of premium on returned equity seemed less imminent to the market.

In fact, today, the Banking Index on BSE gained 16.69 points or 1.02% to 1,660.55. Banking PSU stocks like Bank of Baroda (up 4.29% to Rs 114.15), Oriental Bank of Commerce (up 2.39% to Rs 139), Bank of India (up 1.72% to Rs 50.35), Dena Bank (up 1.78% to Rs 17.15), Indian Overseas Bank (up 1.60% to Rs 22.20), Andhra Bank (up 1.62% to Rs 31.35), Syndicate Bank (up 1.74% to Rs 23.35), Canara Bank (up 1.44% to Rs 95.40) and State Bank of India (up 0.64% to Rs 360.80) led the way for the index.

The market seems to have shrugged off concerns over the Securities Exchange and Board of India (Sebi)'s probe into the abnormal recent movement in prices 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.

Also, rumours are rife that the government is prepared to take back its equity received from public sector banks at par rather than a premium. Many public sector banks are considering the return of government equity and this has prompted the government to consider taking back its equity at market related prices, since banking stocks have risen strongly in the recent past.

But some dealers point out that the overall buying in banks may just as well be because these stocks are attractively priced, as they are in the oversold zone.

Among private sector banks, Bank of Punjab (up 2.42% to Rs 21.20), Bank of Rajasthan (up 1.16% to Rs 21.80), J&K Bank (up 1.31% to Rs 228.50), Karur Vysya Bank (up 1.27% to Rs 186.80) and Federal Bank (up 1.63% to Rs 152.70) made significant gains.

In any case, 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.

Following the improvement in financials of most banks, the Banking Index has witnessed a sustained uptrend over the past year, up 403.9 points or 32.14% from 1,256.65 on 21 June 2002.