Banks in India are a very diverse lot. On one hand, you have some PSU entities struggling with bad loans.
On the other, there are few private sector ones that have hardly been
impacted by the growth slowdown and loan restructuring in India Inc.
What really binds the banks of different sizes together is the
regulator's (RBI's) prudent policy making. Hence while investors might
want to evaluate each bank on its own merit, the RBI's conservative
stance is a huge assurance. In fact the central bank has consistently
proven itself to be ahead of the pack when it came to proactive risk
mitigation. Hence a recent report by Credit Suisse quoted by Economic
Times does not quite surprise us. The report questions whether banks in India should be valued at a premium to their Asian counterparts.
Source - ET
Now it is not as if valuation of all banks in India is within a narrow range. In fact there is a huge gap between the valuation of PSU and private sector banks.
Yes, the average may still be higher than the Asian peers. However, the
banks that have established an impeccable track record in quality and
margins certainly deserve a premium. More so because given the high
savings rate and low credit penetration in India, banks here could
possibly have the highest growth rate in the coming decade. Therefore
instead of writing off all Indian banks as expensive and risky,
investors would do well to evaluate them on case by case basis.
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