Pvt banks beat PSU rivals in market cap

Combined Value Of 24 Listed PSBs, Which Control 73% Of Deposits, Is Below 15 Listed Private Banks

Mumbai: The scare of non-performing assets and constraints in raising capital has taken its toll on the market capitalization of public sector banks. The combined market capitalization of all 24 listed public sector banks which control 73% of bank deposits is now below that of the 15 listed private banks. 

    On Tuesday, the combined market capitalization of the 24 public sector banks which include 19 nationalized banks, SBI and its three associates and IDBI was Rs 3,11,877 crore. As against this, the market capitalization of 14 private banks was Rs 3,21,613 crore. This is a reversal of the position at the beginning of the year. As on April 1, 2011, the total market cap of government-owned banks was Rs 4,39,600 crore-—much higher than the Rs 3,74,218 crore for private banks. 
    The share of the two segments in valuation is in sharp contrast to their business performance. As on 2011 June -end , public sector banks accounted for 74.6% of bank deposits, while their private sector counterparts had only 18% with the rest of the funds lying with regional rural banks and foreign banks. Similarly, when it comes to credit, public sector banks account for 74.9% of all bank loans in the country, while private banks have only a 17.6% share. Two bad quarters for State Bank of India and reports of loan restructuring and NPA worries in public sector banks have hit valuations hard. 
    In the private sector, ICICI Bank too has taken a beating in recent days. However, overall the private sector has retained value better than the public sector. The Times of India in its edition on Nov 16 reported that HDFC Bank had overtaken SBI to become the most valuable bank in the country. Incidentally, SBI—the largest lender in the country—has contributed the most to the decline in value of public sector banks. 
    "I am getting the impression that the valuation has been hit not because of capital constraints but due to performance," said Ashvin Parekh, partner, Ernst & Young. According to Parekh, state-owned banks can work around their capital constraints in the short-term by consolidation or through a relaxation in norms that require the government to hold a minimum 51% stake in government-owned banks. "There is also the impression that there is a larger social burden on the public sector banks because of which they have had to restructure large loans," said Parekh. Compared to them, the private banks have been selective in their lending and have had far fewer non-performing assets. 
    In other sectors, the shift in valuation has eventually enabled companies to grab a larger market share in top line as well. However, in banking the situation may well be different since there are a number of other factors other than asset size which determine value. "I don't think there is a direct corelation between increase in market capitalization and increase in marsket share. Increasing in market share has a cost," said Robin Roy, associate director, (financial services), PwC India. 
    "In financial inclusion banks have only scratched the surface as most rural branches are being used to garner lowcost deposits, which is why I 
feel that the fall in equity prices will not have an impact on financial inclusion" said Roy. 
    One reason why private banks have a larger valuation is because they have the freedom to raise equity in any manner—whether it is an international offering, a qualified institutional placement or a domestic offering. ICICI Bank, which has had problems with asset quality similar to others in the public sector, has been able to come out of its problems partly because it could repeatedly raise capital from nternational markets when sentiments were positive. Today, both HDFC Bank and ICICI Bank have more foreign investment than domestic.