Public Sector Banks have MORE resistance

Written by Pradip Kumar Dey | Updated: Mar 4 2009, 08:08am hrs
Despite better profit performance, banks have been unable to increase investor confidence during the last one year. Private sector banks lost a significant amount of investors' wealth (Rs 1.58 lakh crore) during February 13, 2008 and February 13, 2009. In market capitalisation, private banks showed a higher decline compared to public sector banks (PSBs) during the above period. A comparison between 21 PSBs and 17 private sector banks illustrates that PSBs showed a lesser decline in market capitalisation during the last one year.

Harish Menon, executive director, H-Zone Capital said, Despite an above average increase in profitability, banking stocks have fallen in line with the broader markets due to a large scale financial meltdown in global markets. Increasingly, concerns about the asset quality of many banks and their overseas exposure have also resulted in investors going under-weight on the sector. Having said that, current valuations of many frontline PSBs are looking attractive.

In the case of public sector banks, market capitalisation at the aggregate level decreased by 42.4% to Rs 1.61 lakh crore on February 13, 2009 from the level of Rs 2.80 lakh crore on February 13, 2008, and in the case of private sector banks, market capital decreased by 55.1% to Rs 1.27 lakh crore from Rs 2.82 lakh crore during the above period. And the decline was higher in private banks compared to PSBs during the study period.

The Bankex also decreased by 50.5% (5,118.15 points) to 5,024.92 on February 13, 2009 from the level of 10,143.07 on February 13, 2008. And the Sensex also decreased by 43.2% (7314.40 points) to 9,634.74 on February 13, 2009 from the level of 16,949.14 on February 13, 2008.

DR Dogra, deputy managing director, CARE also said, During the last one year, the market capitalisation of banks declined significantly owing to the global subprime crisis. Though the Indian banks remained highly insulated due to a higher capital adequacy ratio and hitherto lower NPAs, the asset quality of banks may deteriorate in FY10 due to rising NPAs. The fear factor creeping into investors minds, the growing real estate bubble, expectations of a slowdown in credit off-take by corporates and individuals, higher MTM losses and the bankruptcy of many US and European banks led to a free fall in market prices of Indian banks.

Among the 21 public sector banks, a significant decrease in M-Cap was seen in the case of Bank Of Maharashtra. The M-Cap of the bank decreased by 65.3% to Rs 984 crore on February 13, 2009 from the level of Rs 2,839 crore on February 13, 2008. Among other decreases in M-Cap, mention may be made of Indian Overseas Bank (-64.2%) and Central Bank Of India (-61.3%). Among the 21 PSBs, a lowest decline was registered in the case of Union Bank Of India (-19.2%).

The top three PSBs according to M-Cap on February 13, 2009 are SBI (Rs 75,815 crore), Bank Of India (Rs 13,234 crore) and PNB (Rs 12,896 crore). Among the private banks, the highest decrease in M-Cap was seen in the case of DCB. The M-Cap of DCB decreased by 80.6% from Rs 1,790 crore on February 13, 2008 to Rs 346 crore on February 13, 2009.

A significant decrease in M-Cap was registered in the case of Yes Bank (-73.6%) and Karnataka Bank (-71.8%).

A decline was also seen in the case of ICICI Bank (-60.5%). The M-Cap of ICICI Bank decreased from Rs 1.22 lakh crore on February 13, 2008 to Rs 48,356 crore on February 13, 2009. The top three private banks according to M-Cap on February 13, 2009 are ICICI Bank, HDFC Bank and Axis Bank. Among these, the highest increase in M-Cap was seen in the case of ICICI Bank.