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Bringing back demonetisation memories, the Reserve Bank of India (RBI) withdrew ₹ 2,000 notes from circulation, in line with its Clean Note Policy. People can exchange or deposit them in their bank accounts by September 30, 2023, however, they will continue to remain a legal tender. 

“On a net basis, it is likely that deposits increase by ₹ 1.5-2 trillion. Durable liquidity could increase by around ₹ 1 trillion depending on the behaviour of depositors. This should ease the credit-deposit ratio across banks,” Kotak Mahindra Bank economists Upasna Bhardwaj and Anurag Balajee said. 

The Bank added that those notes which are not deposited by individuals (undisclosed income, deposits above certain limits and so on) could move to high value spends like gold/jewellery, consumer durables and real estate. This money will eventually find its way and reach bank deposits. 

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Market experts believe that the central bank’s move is going to increase liquidity in the banking sector, particularly in PSU banks as most of the ₹ 2,000 notes are expected from tier-2 and tier-3 cities. 

“Due to higher liquidity in the wake of ₹2000 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. 

“This move by the RBI is expected to increase liquidity of banks. But, it would benefit public sector undertaking PSU) banks most as majority of ₹2000 notes deposit is 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,” said Chandan Taparia, Derivative & Technical Analyst at Motilal Oswal Financial Services. 

Here are a few PSU Bank stocks in which analysts expect an upside of up to 35.52% 

Indian Bank 

Motilal Oswal has a buy rating on the shares of Indian Bank with a price target of ₹ 360.00. This implies an upside of 25.11% as compared to its share price of ₹ 287.75. 

Bank of Baroda 

Motilal Oswal has a buy rating on the shares of Bank of Baroda with a price target of ₹ 240.00. This implies an upside of 32.74% as compared to its share price of ₹ 180.80. 

Canara Bank 

Motilal Oswal has a buy rating on the shares of Canara Bank with a price target of ₹ 400.00. This implies an upside of 33.07% as compared to its share price of ₹ 300.60.

State Bank Of India 

Prabhudas Lilladher has a buy rating on the shares of SBI with a price target of ₹ 770.00. This translates to an upside of 33.55% as compared to its share price of ₹ 576.55 at the time of writing this article. 

Union Bank of India 

Motilal Oswal has a buy rating on the shares of Union Bank of India with a price target of ₹ 95.00. This implies an upside of 35.52% as compared to its share price of ₹ 70.10. 

Written by Simran Bafna 

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