Bank shares have proved prodigious ever since the passage of the Securitisation Bill in Parliament in November 2002 and have risen for the second day running on Tuesday.

Among the top gainers were banking PSUs. Canara Bank (up 6.2% to Rs 69) clocked heavy volumes of 4.7 million shares on BSE on Tuesday.

Punjab National Bank (up 5.4% to Rs 79.75 with volumes of 830,000 shares) and SBI (up 2.4% to Rs 297.40), were the other major gainers.

In private sector banks, J&K Bank (up 2% to Rs 128.50), made good headway. Other banking PSU gainers included Bank of Baroda (up 2.4% to Rs 75.90) and Union Bank of India (up 1.9% to Rs 25.70 but off the day's high of Rs 26.35). Union Bank clocked strong volumes of 2.16 million shares on BSE by mid-afternoon trades.

Bank of India (up 2% to Rs 39.30), Corporation Bank (up 1.7% to Rs 145.50), Andhra Bank (up 1.8% to Rs 28.15), Oriental Bank of Commerce (OBC) (up 1.6% to Rs 57), Indian Overseas Bank (up 1.6% to Rs 18.50) and Dena Bank (up 1.4% to Rs 14.20), all gained as well.

Shares of private sector bank HDFC Bank climbed 1.8% to Rs 240.70. The scrip however was off the day's high of Rs 244.25.

Today is the second day of the rally in bank stocks. A host of bank shares rose on Monday including PNB (up 5.8% to Rs 72.65), J & K Bank (up 6.62% to Rs 125.90), Federal Bank (up 5.90% to Rs 96.10), Oriental Bank of Commerce (up 5.06% to Rs 56.10), Union Bank of India (up 5% to Rs 25.20), Canara Bank (up 4.41% to Rs 65.05), Allahabad Bank (up 2.25% to Rs 15.90), Bank of Baroda (up 2% to Rs 74.10) and Corporation Bank (up 1.56% to Rs 143.05).

The currently rally in bank shares comes on the back of buying by local mutual fund Alliance Capital Mutual Funds, dealers said. ACMF is said to have resumed buying in the banking sector. Earlier, bank stocks came off their highs as ACMF had (reportedly) offloaded these stocks due to redemption pressure over recent weeks. On Monday, US-based Alliance Capital said that it had decided against pulling out its 75% stake in Indian mutual fund venture ACMF after a strategic review.

Marketmen say an upward re-rating of banking PSU stocks has been going on since the passage of the Securitisation Bill in Parliament on 22 November 2002. The bill paves the way for recovery of sticky assets of banks. Hitherto, archaic laws tilted in favour of borrowers made it difficult for banks and financial institutions to recover debts. According to the ministry of finance, non-performing assets of public sector banks in India range between Rs 70,000 crore (Rs 700 billion) and Rs 1 lakh crore. NPAs of banks and FIs account for over 5% of the GDP.

Under the Securitisation Bill, lenders can send notices to defaulters giving them a period of 60 days. If the borrower fails to pay during that period, the Securitisation Bill allows banks to take possession of defaulters' properties and also the personal properties of promoters/directors pledged with the bank. The bill is a significant legislative initiative to address the malaise of mounting NPAs. Further, the bill paves way for setting up of asset reconstruction companies  to recover NPAs. Importantly, the Securitisation Bill has created the right environment for the lending business, say analysts.

For Q3 ended 31 December 2002, most PSU banks posted upbeat Q3 results largely on the back of treasury gains against the backdrop of the falling interest rate regime. A number of banks have cut deposit rates in the last one month.