Despite better profit performance during 2007-08, the price-earnings ratio (P/E) of private banks at the aggregate level showed a decline on June 12, 2008, against that of June 12, 2007 and in the case of public sector banks as well, P/E showed a marginal decline during the same period.

But private banks’ price earning (P/E) ratio was higher than public sector banks on June 12, 2008 and June 12, 2007. A comparison between 21 public sector banks operating in the country and 18 private banks, all profit making, shows this.

According to an analyst, private banks like HDFC Bank, ICICI Bank are rapidly increasing their asset base every year vis-?-vis public sector banks. Hence, they enjoy much higher P/Es. However, a significant decline has been witnessed in Bankex stocks as well. P/E of Bankex decreased by 5.12 points to 12.36. This compares with 17.48 times last year.

The M-Cap of the Bankex during the study period decreased by 3.24% to Rs 3,35,985 crore from last year’s Rs 3,47,250 crore.

The aggregate market capital of 21 public sector banks have marginally increased by 0.66% from Rs 1,83,732 crore on June 12, 2007 to Rs 1,84,949 crore on June 12, 2008. Their four quarters trailingi net profit has increased by 35.6% during the study period, decreasing the P/E ratio from 10.31 times on June 12, 2007 to 7.65 times on June 12, 2008. What is significant is that with higher profit growth, the public sector banks have failed in raising their P/E.

Private sector banks, on the other hand, have achieved a decline of 4.83% in market capital on June 12, 2008, but the trailing net profit has increased by 39.3% to Rs 9,333 crore. And the P/E ratio has significantly decreased from 31.82 on June 12, 2007 to 21.74 on June 12, 2008. A significant increase in P/E ratio was seen in the case of IndusInd Bank. The P/E ratio of IndusInd Bank increased from 12.79 on June 12, 2007 to 27.67 on June 12, 2008.

In ICICI Bank, the P/E decreased from 32.89 to 19.87 on June 12, 2008.

Among the public sector banks, only UCO Bank showed an improvement in P/E. The price to earning ratio rose from 5.78 on June 12, 2007, to 7.24 on June 12, 2008. In the case of SBI, the P/E decreased from 17.91 to 12.64.