PSB-private banks valuation gap shrinks

THE VALUATION GAP between public sector banks (PSBs) and private lenders has been narrowing in recent months as the state-owned lenders continue to report stronger balance sheets and sustained profitability.

- KSHIPRA PETKAR

Data from the NSE show that the trailing twelvemonth priceto-earnings (P/E) ratio gap between the Nifty PSU Bank Index and the Nifty Private Bank Index moderated to about 9.58 as of March 16, compared with 11.85 in December.

However, the interesting part is that this happened because the P/E of private banks declined while it was steady for PSBS.

THE P/E RATIO of the Nifty PSU Bank Index stood at 8.50x as on March 16, largely unchanged from 8.44x in December. In contrast, the Nifty Private Bank Index saw its P/E ratio decline from 20.29x to 18.08x during the same period, leading to the valuation differential becoming narrow.

Last March, the P/E ratio of PSBs stood at 6.11x whereas for private banks, it was 14.46x.

Since then, private banks rose sharply till December before it fell. In comparison, PSBs have shown a slow but steady rise.