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CNX PSU Bank Index, representing top public sector banks, has lost close to a quarter of its value in a year. The profitability of the Index constituents has come under severe strain due to moderating economic growth and high interest rates. Deterioration in quality of loan book was the single biggest let down for the banks. The gross non-performing asset (NPA) ratio of PSU Banks went up from 2.6 per cent in June 2011 to 3.4 per cent as of June 2012. The top public sector banks have, in the last three years, restructured a large portion of loans. These have added to the NPAs. .
High employee provisions arising from pension and gratuity costs and constraints in capital raising also took a toll on bank stocks.
State Bank of India which has close to 50 per cent weight in the index helped limit the downside as it only lost 16 per cent. Other PSU Bank stocks on an average lost 28 per cent of their value in a year. Indian Overseas Bank, Union Bank of India, Punjab National Bank, Allahabad Bank and Oriental Bank of Commerce were among the top losers. .
The index is currently trading at 1.1 times its book value and a price-earnings multiple of 6.6 times.
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