India Banks: Cheap, Risky
A March 18 thread called the India banking trade 'painful' — valuations appear cheap, but private banks face post‑merger execution problems, conservative strategies and other operational headwinds while public sector banks are outgrowing privates ( ). The analysis broke the sector into eight specific banks/segments and warned that cheap multiples reflect real structural concerns ( ).
HDFC Bank told investors its post‑merger funding mix pushed down low‑cost CASA deposits and raised borrowings, leaving reported net interest margin near 3.4%–3.5% on the Q1 FY26 call. (bfsi.economictimes.indiatimes.com) Kotak Institutional Equities’ sector note shows public sector banks recorded roughly 12% year‑on‑year loan growth while private banks trailed below 10% in recent quarters. (investmentguruindia.com) Reserve Bank of India data compiled by Business Standard put private‑bank credit growth at about 9.5% in FY25, the steepest fall among bank groups. (business-standard.com) Analysts flagged a conservative stance on private lenders after Q1 results, with mutual funds turning underweight amid margin squeeze and weak loan traction, according to Moneycontrol’s market coverage. (moneycontrol.com) Jefferies’ Prakhar Sharma noted “good, high‑quality” bank stocks trading around 15–16x earnings, underscoring a bifurcation where some names command premium multiples while smaller lenders trade at deep discounts. (cnbctv18.com) HDFC has signalled it will normalise an elevated branch rollout and aims to lower its credit‑to‑deposit ratio back toward pre‑merger levels (targeting roughly 85%–90% by FY27), while other recent consolidations such as the IDFC → IDFC FIRST Bank reverse‑merger closed on October 1, 2024, adding integration work across the sector. (moneycontrol.com) (livemint.com) Market metrics show the banking industry trading around an 11–13x PE band on aggregate while select smaller private banks trade at “massive valuation discounts” versus leaders like HDFC and ICICI, a gap investors cite as pricing in execution and franchise risks. (simplywall.st) (financialexpress.com) Ratings agencies see resilient capital and improving asset quality but warn margins and earnings could stay muted as loan growth moderates; Fitch flagged stronger core metrics but noted cyclical earnings pressures, and S&P projected aggregate loan growth for the largest banks to slow into the low‑teens. (fitchratings.com) (spglobal.com)
