Regional Banks
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Amit shah
Aug 29, 2013, 3:43:27 AM8/29/13
to amitk...@oneindia.in
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Regional Banks: The search for a pan-India franchise
Regional banks have differentiated themselves from PSU banks on asset quality and now trade at a premium to PSU banking stocks. Their profitability and valuation differential to large private sector banks has, however, persisted, owing to higher cost of funds, low fee income generation and higher cost to income. The improvement on all these three parameters, we find, is related to the quality of the liability franchise, for which geographical diversification is the only lasting solution. The evolution of ING Vysya Bank (IVB) also proves the significance of geographical diversification. Even as Federal Bank (FB), Karur Vysya Bank (KVB) and South Indian Bank (SIB) manage their asset quality risks, their operating performance would remain constrained due to their liability franchise. City Union Bank (CUB), on the other hand, has done better under similar constraints and looks likely to outperform its peers on growth and profitability.
Regional Banks: The search for a pan-India franchise
Regional banks have differentiated themselves from PSU banks on asset quality and now trade at a premium to PSU banking stocks. Their profitability and valuation differential to large private sector banks has, however, persisted, owing to higher cost of funds, low fee income generation and higher cost to income. The improvement on all these three parameters, we find, is related to the quality of the liability franchise, for which geographical diversification is the only lasting solution. The evolution of ING Vysya Bank (IVB) also proves the significance of geographical diversification. Even as Federal Bank (FB), Karur Vysya Bank (KVB) and South Indian Bank (SIB) manage their asset quality risks, their operating performance would remain constrained due to their liability franchise. City Union Bank (CUB), on the other hand, has done better under similar constraints and looks likely to outperform its peers on growth and profitability.
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