A good bank or nbfc with good track record trades at high pb ratio. pat can be manipulated easily by lowering or increasing the provision. so roa, roe and asset quality determines the pb ratio. check hdfc bank pb ratio and bandhan bank pb ratio for example. for past 7-8 years. higher the roe higher the pb ratio. provided that they have good history. check arman finance pb ratio. ot has 30 roe trades at premium pb ratio. when u buy bank or nbfc u r buying the equity portion which is nothing but cash. what roe the bank or nbfc can generate determines at what multiple u will buy. some bad banks like the PSU banks trade at cheap pb ratio.
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