Thanks for sharing insights on what could be the possible reasons for the kind of valuation. I am debating each one of them based on how I see it.

1. The major insight is that RoA should be a better metric here because the bank seems to have excess leverage. RoA is close to 1% which is lower than Federal Bank’s 1.22% but higher than Yes bank’s 0.3% last FY. While it is a good relative measure I find it difficult to use it to make an interpretation on whether something should trade below the book.

2. The second one is linked to the first in the sense that RoE could be misleading because the bank is taking excessive leverage. I don’t know what could be a good metric here but I assume the CET-1 could be the one which banks report and give importance to. The leverage the bank is taking with its core capital is right now above 16.5% and is comparable to the best banks . Before dilution the ratio was at twelve plus region. I don’t know how good or bad this can be . However, this is far above the regulatory requirements so I assume the bank is not reckless on this aspect.

3. The third one is on equity dilution. The recent one increased number of shares by about 25% and thus diluted stake by 20%. If I read it right , the one before this was only in 2017. The board seems to have approved further dilution and I thought it was just a procedural part. Now I wonder if they plan to grow in low double digits why they require more core capital. So does the market feel like there is more dilution coming ?

4. The other aspect is on growth. Yes they don’t have aggressive growth plans but to make it clear my curiosity is only regarding why it is trading below the adjusted book. I do not want to compare it with say Federal bank or Yes Bank and say they have a higher relative valuation. Even in the hypothetical case of zero growth why should something that gives 13+% return trade below the adjusted book. Does the market feel like the 13+% return is one off? I assume that when a bank is traded below the book the market expects it to further erode the capital by either giving loans that will go bad or by giving loans that will not earn enough to cover its cost of capital. I don’t see indicators for that right now because the bank seems to be on the path to recovery but are there things like ‘possible dilution’ which the market is factoring in.

PS: Invested from Rs 11 range.

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Personally to me, it doesnt look like pure Saas company. Their revenue from software is very marginal. It looks to me more like a payment processing company. I havent looked at how they recognise revenue of their different verticals. I prefer valuing it more like Route mobile or Twilio, transaction based revenue. So valuing it more like them may be more appropriate?