SBI, PNB, Bank of Baroda stocks under pressure as FM Nirmala Sitharaman meets PSB chiefs

Shares of State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda fell on Monday ahead of a key meeting of Finance Minister Nirmala Sitharaman with heads of public sector banks (PSBs). The Nifty PSU Bank — which tracks the performance of 12 major state-run lenders in the country — fell as much as 2.3 percent, relatively underperforming its private sector counterpart.

The Finance Minister is likely to review the performance of the lenders in the day-long meeting, and take stock of a host of issues like credit growth, asset quality, capital requirements and financial inclusion under the government's outreach programmes.

The meeting comes at a time when the Reserve Bank of India (RBI) has raised the repo rate — the key interest rate at which it lends money to commercial banks — by 90 basis points since May 4, as central banks scramble to tackle persistent elevated levels of inflation without hurting economic growth.

Well-capitalised banks are in a better position to benefit from the environment of rising interest rates, Unmesh Sharma, Head-Institutional Equities at HDFC Securities, told CNBC-TV18. The recent sell-off has turned valuations in the banking basket more interesting, he said.

"If you adjust the value of the subsidiaries, a lot of these companies are now trading between 1.5 percent and 2.5 times price to book... Of course they can go down further. But if you are a long-term investor, looking at 12 months or beyond, this is one space you definitely want to be overweight on,” he added.

Meanwhile, the yield on the 10-year government bonds has risen 1.4 percent in the past one month. Public sector banks are more exposed to government bonds than their private sector counterparts.