Indian Banking Sector - Private Banks Offer Superior Valuation Comfort Versus PSU Peers: Systematix

Systematix Research Report

In the near term i. e. for FY25, PSU banks in general have greater cushion for pre-provision operating profit outperformance vs private banks on the back of low CDR and base effect from the high wage bill of FY24. However, in our view, from a medium to longer term, private banks should deliver superior risk adjusted returns on the back of deeper penetration into the semiurban/rural markets, conservative underwriting standards and tech enabled operating leverage.

With most of the private banks trading below their long term means, their current valuations also offer more upside versus the PSU banking peers.

Pecking order of preference based on potential for valuation rerating and operational improvement would be - IndusInd Bank, HDFC Bank, SBI, Kotak Mahindra Bank, Federal Bank, ICICI Bank and Axis Bank.

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