Hauling up state-run banks for their low price-earning ratios compared to their private competitors, the finance ministry has asked the lenders to increase interaction with foreign and domestic institutional investors to improve valuations.
The issue of sagging share valuation of PSBs came up for discussion at a recent meeting of bank chiefs with finance minister P Chidambaram, who has highlighted the need for improving investor relations.
“There is a need to have a systematic investor-bank relationship management in place in PSBs. This has become absolutely necessary as the price-earning ratio in all the PSBs is about one-fourth of what is there in the private sector banks,” an official told FE.
Except the State Bank of India, the PE ratios of most of the major banks were less than 10 last fiscal and estimated to decline in 2012-13, whereas the ratio for private banks, including ICICI Bank, HDFC Bank, Axis Bank and Yes Bank, were over 10.
Kotak Institutional Equities estimates SBI's PE ratio to slide to 9.7 in the fiscal ending March 2013, while Punjab National Bank could manage to command a PE of just 5.3, Bank of Baroda (6.4), Canara Bank (6.2), Bank of India (5.2) and Corporation Bank (4.3).
In contrast, the PE ratio of ICICI Bank is expected to stay at 15.8, while HDFC Bank will command a price multiple of 22.4, Axis Bank (11.3), Yes Bank (12.5) and IndusInd Bank (18.6).
The ministry has directed that chairmen and executive directors of state-run banks must have “regular interaction” with FIIs and foreign high-networth individuals whenever they go abroad, an official said.
Such investor meet can be organised by one of the global merchant bankers operating in India.
"It is also necessary for banks to set up a team of professionals having experience in managing investors relationship so that take a proactive approach,” the official said.
In fact, the ministry has suggested that the banks set up a separate department, under a managing director or executive director, to manage investor relationship and redress grievances.
Apart from tardy investor relationship, PSBs have failed to instill much confidence among investors following increase in non-performing assets to 4% of gross advances by end September 2012, a one percentage point rise in a year.
The outlook for state-run lenders has further worsened as many of them have heavy exposure in stressed sectors like power, telecom, steel, textile and construction.