Leverage also brings with it added risk, which depresses the PBV to an extent. Market likes a good balance between leverage and ROA levels.
As an aside (more relevant for NBFCs than banks), there are 2 ways to increase ROE. One is by increasing leverage and the other is by increasing non funded income (Fee income, co-lending income etc.). Market would value a bank/NBFC which increases ROE by the 2nd method, higher than a bank/NBFC which increases ROE by the 1st method.
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