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India’s state-owned banks led their private-sector peers, posting the highest gains in their market capitalization since the start of the year.
This comes as the banks improved their financial metrics and as the government’s focus on long-term projects largely benefits the state-owned lenders.
Indian Overseas Bank led the country’s 20 largest banks, logging a quarter-over-quarter increase of 38.5% in its market capitalisation, which rose to Rs 1.133 lakh crore in the quarter ended March 31, S&P Global Market Intelligence data shows. Punjab & Sind Bank and Bank of Maharashtra ranked second and third, with gains of 38.4% and 38.1%, respectively.
The market capitalisation of all state-owned banks on the list of the country’s 20 largest banks improved from the previous quarter. Of the private sector lenders, only ICICI Bank Ltd. and Yes Bank Ltd saw improvements, with both posting single-digit increases.
State-owned banks are better placed than private sector lender in metrics such as loan-to-deposit (LDR) ratio and loan growth, Nomura said in a Feb. 8 report. By and large, they have much lower LDRs than private sector banks, “hence the challenge to mobilize deposits to fund incremental loan growth is much lower,” the brokerage said.
| Apart from State Bank of India, PSU banks do not have material exposure to unsecured retail loans, which is a key asset quality issue for the sector, Nomura added. |
Investor sentimentInvestor sentiment about Indian banks, particularly those that are state-owned, has improved markedly in recent years as they have had solid credit growth in a fast-growing economy. The Nifty PSU Bank Index, for instance, rose more than 22% in the first quarter, while the Nifty Private Bank Index fell more than 5% in the same period. The decline in the market capitalization of HDFC Bank dragged down the private bank index as the lender comprises about 26% of the index. Market Intelligence data shows that the market cap of HDFC Bank Ltd. fell 15.2% in the quarter, clocking in at nearly 11 trillion rupees.
India expects its $3.5 trillion economy to grow 7.6% in the fiscal year that ended March 31, compared with 7.0% in the prior fiscal year, making it the fastest-growing major economy in the world. The government is spending billions of dollars upgrading the country’s infrastructure, building highways and airports. The government’s focus on such long-term projects likely benefit state-owned banks more than private lenders as they traditionally have higher exposure to these sectors.
Overall, 15 of the 20 largest banks in India logged gains in market capitalization in the first quarter, with 13 of them posting double-digit increases. All the five banks witnessing declines in their market capitalisation were private sector banks: HDFC Bank, Kotak Mahindra Bank Ltd., Axis Bank Ltd., IndusInd Bank Ltd and IDFC First Bank Ltd, the data shows.
The top five banks retained their ranking during the quarter, with HDFC Bank continuing to stay atop the list, followed by ICICI Bank. State Bank of India, the country’s biggest lender by assets, secured the third place in the ranking list in the quarter.
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