PSU Banks contribute 14% to the overall market capitalisation erosion in May so far

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of state-owned lenders extended their fall on Tuesday (May 7), after the Reserve Bank of India’s (RBI) draft rules, which proposed tighter rules for project financing. The gauge for public sector banks saw all of its constituents losing value for the second day in a row.

Moreover, the extended drop also wiped out ₹1.1 lakh crore of investor wealth over the last four sessions. In contrast, the aggregate market capitalisation of all listed companies on the NSE slid ₹7.9 lakh crore during the same period to ₹395.13 lakh crore. As of Tuesday’s close, the combined market valuation of state-owned banks stood at ₹16.5 lakh crore.

The Nifty PSU Bank index declined another 2.3% on Tuesday, after losing nearly 4% in the previous session. The two-day fall has taken the index’s month-to-date loss to 6.8%. Interestingly, the May month had seen a sell-off in previous years as well. While it declined 3.3% in May 2023, the gauge had dropped 6.6% in May 2022.

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Among the index constituents, the largest lender — State Bank of India — lost the most, which was followed by Punjab National Bank. While the market capitalisation of SBI declined by ₹21,730 crore since the beginning of May, other lenders like Punjab National Bank, Bank of Baroda and Indian Overseas Bank also saw their market valuation fall between ₹11,000 crore to ₹20,650 crore during the same period. These four banks contributed almost 60% to the fall of the Nifty PSU Bank index.

Bank stocks, particularly state-owned banks have sold off after the RBI issued new rules for projects under implementation. All 12 stocks on the Nifty PSU Bank index closed lower for the second day in a row. The central bank has tightened the lending for project financing, which will lead to increasing standard asset provisioning to 1%-5% of loans from the present 0.4% in a phased manner.

While the benchmark Nifty50 declined 1.3% since May 1, the Nifty Bank Index has slid 2.3%, whereas the Nifty PSU Index has come off close to 7% during the same period.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow