PSU banks' shares drop on bad asset fears

Shares in state-run banks fell sharply on Friday after Punjab National Bank and Union Bank posted a sharp rise in non-performing assets, sparking fears about the quality of assets in the government-owned sector.

The performance of state-run banks contrasted with private lenders after ICICI Bank said on Friday non-performing assets fell in the April-June quarter. Shares in India's biggest private lender rose 2.1 percent.

The results showed private banks are better placed for profit growth in the current environment than government-owned banks, whose lending decisions are not always driven by commercial considerations.

In contrast to ICICI, Punjab National Bank said on Thursday net non-performing assets rose in the previous quarter. Shares in the regional lender dropped 4.5 percent.

Union Bank also recorded a surge in bad assets, sending its shares down 6.6 percent.

Punjab and Union Bank's results hit State Bank of India , which fell 2.2 percent. The country's biggest lender has not announced a date for its earnings results.