Bank Stocks in India - A Peer comparison9 March, 2009 We have seen Bank stocks getting hammered each passing week. With the Corporate sector exhibiting visible impact of the overall slowdown in the economy, there are understandable concerns on the performance of the banking sector. Of particular concern has been the risk of deteriorating credit quality and hence rising Non-Performing Assets and consequently greater provisioning requirements, leading to a squeeze on margins & profitability. It has also not helped that in Q2 and Q3 FY2009 for most banks, the cost of funds has been sharply going up, with the share of low cost CASA (current account/savings account) funds steadily going down. As I watched the secular hammering of banking stocks, I couldn't help wondering if the pessimism is not being overdone - not all bank stocks deserve equally severe punishments; surely there are some with good performance records getting butchered more than they deserved? Refining my quick-check template for comparing banking stocks, here's what I found. 
We can derive some quick conclusions from the above table. (Havn't checked the Q3 result updates for these banks -the conclusions may need to be tempered with trends data for above parameters) 1. Yes Bank shows the best NPA levels, significantly better than the rest. Interestingly, it enjoys comparable net margins but boasts the best Asset Turnover and Return on Assets (ROA) ratios -leading to the highest Return on Equity (ROE), without resorting to excessive financial leverage (As per Pat Dorsey, a financial leverage of 12-15 is comfortable for banks). 2. Yes Bank stock has also been hammered the most, after ICICI Bank. Available currently at less than Book Value, and a P/E ratio of ~4. The only concern is, it has one of the lowest Net Interest Margins (NIM). 3. Somewhat similar conclusions can be drawn for Axis Bank, which too seems to fare comparatively better than some of the other big names. Looks to me, Yes Bank and Axis Bank deserve further investigation for in-depth analysis. What makes it more interesting is that both these banks are bound to be attractive candidates for takeover/merger once the government allows the impending consolidation in the Indian Banking sector (earlier slated for 2009). Watch this space for updates!
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