Investors in Indian State Banks Gifted With $17 Billion Windfall

(Bloomberg) -- Long-suffering investors in India’s state banks won a welcome reprieve from Prime Minister Narendra Modi’s surprise $32 billion pledge of capital for government lenders.

The move drove the PSU Index of state banks up by 30 percent on Wednesday, adding about $17 billion in market capitalization to its members, as optimism builds that the new funds will fill the gaping hole in capital that had curbed the lenders’ ability to extend credit.

Even so, the PSU index has a long way to go before it catches up to its sister index, the Nifty Bank Index. That gauge, which also measures private-sector lenders, more than doubled in the past five years, while the PSU -- prior to Wednesday -- had barely moved.

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