New valuation gap between top tier pvt sector banks and their small peers

BL Bank, for example, is down 47.2 per cent during the period. Its m-cap is down from ~15,700 crore on February 20 to ~8,283 crore at the close of trading on March 16

A sharp correction in banking stocks has opened a large valuation gap between top tier private sector banks and their smaller peers. While private sector banks have seen a 23.4 per cent decline market capitalisation (m-cap) on average since February 20, when the markets began to correct, many smaller banks lost nearly a third of their m-cap during the period.

RBL Bank, for example, is down 47.2 per cent during the period. Its m-cap is down from Rs 15,700 crore on February 20 to Rs 8,283 crore at the close of trading on March 16. IndusInd Bank is down 44 per cent during the period. Its m-cap is now down to Rs 46,000 crore, from Rs 82,000 crore around three weeks ago. Other banks that lost 30 per cent or more during the period include Bandhan Bank, Axis Bank, IDFC First Bank, Karur Vysya Bank, and Karnataka Bank. In contrast, HDFC Bank, Kotak Mahindra Bank, City Union Bank, and DCB Bank outperformed their peers and are down 18-19 per cent.

Analysts said this would polarise the industry between top tier banks and the others. Sharp decline share prices would make it tough for many of these smaller banks to raise fresh capital, forcing them to forego market share in favour of their larger peers. The YES Bank fiasco has already made it tough for banks to raise additional tier-1 capital. Surprisingly, YES Bank is the top performer with a 5 per cent increase in the market capitalisation during the period.

Source: Capitaline, compiled by BS Research Bureau