Growth improvement coupled with better liquidity conditions and capital markets would lead to acceleration in de-leveraging and deceleration in incremental stress addition. This would result in margin expansion and reduction of credit cost primarily for state owned banks. Positive budget announcement and policy reforms in important sectors would be the key for the further re-rating.
Despite the run up in stock prices by 30- 100%+, private banks are still trading at PBV multiple of 15%+ LPA and state-owned banks at a discount of 10% over LPA. Private banks would continue to command premium valuation driven by improved visibility on growth, healthy core operations and return ratios, top managements’ continuity, lower asset quality issues, adequate capitalization, strengthening liability franchise and low hanging fruits (ability to capture market share from state-owned banks due to superior service).
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