A funny situation:

You should buy when there is blood in the streets

If you do not buy when the markets are down when will you buy?

Markets can be irrational far longer than you can be solvent

Never catch a falling knife

Ok if you have to navigate between all these market sayings what will you do?

The optimistic view:

Sure, the psu banks are in shit shape, but they always were in such shape, and the get a good pe when the markets boom. Before this PNB shit hit the market was PNB a great bank? I do not think so. PSU banks are not quoting at zero value, nor will they ever will. Not long ago SBI was quoting at 180 and then we ourselves saw it at 300. So if you traded from 180 to 300, you did not do too badly did you? When the markets are doing well, will the psu banks not increase the business? SBI is the biggest mortgage lender, and along with IDBI bank are the ONLY 2 organisations which give mortgage overdrafts. Mortgage overdrafts are immensely attractive for people with a fluctuating income. So sure, these are good products. Similarly if psu banks have 70% of the commercial banking business, they are in no hurry to close down, are they?

Pessimistic view:

Psu bank employees have no skin in the game and are paid poorly compared to the foreign banks (there are no Indian banks which are privately owned, not even Kotak, where the foreign ownership is now more than 50%). So you have psu banks where he employees speak well, are well dressed, all branches look good, but are run for the benefit of the employees at the cost of the shareholders – Icici, Axis are in this category. The other psu banks give out bad loans under stress and their balance sheets are stressed. However in a booming market these banks will also do well.

So if you ask me it is a tough call to take. When PNB announces a Rs. 11000 crore fraud, obviously the market cap fall has to be in the region of 30-40,000 crores. However, this too shall pass.

So take your call.

PS: I am not keen to own a psu bank ever. Except as a trade. Currently I own some Sbi. However my bfsi portfolio is full of owner driven nbfc and of course Hdfc and Hdfc bank, Kotak bank.