PSU banks under pressure, CNX PSU Bank index hits 18-mth low

Bank of Baroda, Bank of India, Union Bank of India, IDBI and Oriental Bank of Commerce are down by 5-7% on NSE.

Shares of public sector undertaking (PSU) banks are under pressure falling up to 7% on the bourses ahead of the finance minister P Chidambaram meeting with banking heads today to review financial performance of lenders and discuss ways to step up lending activity to boost sagging growth.

Bank of Baroda, Bank of India, Union Bank of India, IDBI and Oriental Bank of Commerce are down by more than 5% each, while Punjab National Bank, Indian Overseas Bank, Allahabad Bank, Canara Bank, State Bank of India, Andhra Bank and Syndicate Bank are down 3-4% on the National Stock Exchange (NSE).

The NSE, PSU banking shares index, CNX PSU Bank has dipped 4.3% compared to 1.5% fall in benchmark Nifty at 1214 hours. The index hits low of 2,663, its lowest value since January 2011, during intra-day trades.

At a review meeting with chiefs of state-run lenders today, the finance ministry would take up the issue of high interest rates despite a 75 basis points rate cut by the central bank in 2013, the Business Standard report suggests.

The Finance Minister is likely to ask banks to increase lending to productive sectors to prop up growth as the Economic growth hit a decade low of 5% in 2012-13. 

Bankers said the Finance Minister may ask banks to reduce their lending rates for pushing up loan growth and economic activity, the PTI report suggests.

The reducing the lending rate would take a hit on the bank’s net interest margins. Further, asking the banks to clear stalled projects and newer ones will only add to the rising non-performing assets (NPAs) of the banks, according to analyst.

Among the individual stocks, Bank of Baroda has dipped 7% to Rs 552, followed by Bank of India and Union Bank of India, down by 6% each at Rs 221 and Rs 175 respectively.