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Banker
Of The Year BS
Round Table Innovate
& flourish The
Urge To Merge The
Vanishing NPAs Database |
Valuation vortex Why are Indian banks so undervalued? Tamal Bandyopadhyay tries to find an answer Giants at home, but minnows in the global arena. That just about sums up the state of Indian banks. So when RBI Deputy Governor V Leeladhar says “We are slowly but surely moving from a regime of a large number of small banks to a small number of large banks,” he is only voicing the fond hopes of the domestic banking fraternity. The problem is real. Consider this: The market capitalisation of Industrial and Commercial Bank of China (ICBC), China’s largest lender, at over $157.76 billion is more than double the collective market capitalisation of 37 listed Indian banks, which stood at $69.50 billion as on November 10. It is also eight times the market capitalisation of India’s most valuable bank, ICICI Bank. ICBC may still be far behind Citigroup ($249 billion), but it is a giant vis-a-vis all Indian banks put together. ICICI Bank tops the market capitalisation chart with $16.60 billion (Rs 74,315 crore), followed by State Bank of India’s $13.35 billion (Rs 59,729 crore) and HDFC Bank’s $7.35 billion (Rs 32,852 crore). None of the other listed Indian banks has over $5 billion worth of market capitalisation. Punjab National Bank follows with a market cap of just $3.65 billion.
Indian banks indeed fare poorly in terms of market value, but when it comes of the price-to-book value (P/BV) they are quite well placed. After adjusting for non-performing assets, HDFC Bank’s P/BV is 6.22 times and that of ICICI Bank is 3.32 times. UTI Bank’s P/BV is 4.60; Yes Bank’s 5.44 and Centurion Bank of Punjab’s 4.66. Kotak Mahindra Bank has the highest P/BV at 13.88 and the newly listed Development Credit Bank 9.44. Public sector banks, however, have a lower P/BV – below two times for most of them, barring exceptions like State Bank of India (2.62), Bank of India (2.12) and a few others. ICBC’s P/BV is about 2.2 times. Most US banks trade in the range of 1.2-3.5 times. In case of European banks, the range is 2-3 times P/BV. HOME Business Standard • November 2006 |
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