scorecardresearchBottom Fishing: Here are Top 5 Private sector banks with low PE multiples
On May 04, the RBI raised its key lending rate by 40 basis points to 4.40 per cent with immediate effect.

Bottom Fishing: Here are Top 5 Private sector banks with low PE multiples

Updated: 19 May 2022, 04:43 PM IST
TL;DR.
In the fiscal year 2021, the value of gross non-performing assets of private banks across India amounted to over two trillion Indian rupees. In the fiscal year 2020, for the first time, the value of gross NPA reached more than two trillion Indian rupees.

The Nifty Bank has corrected by 11% since the RBI rate hike. Since then, the Nifty bank has dropped roughly 4433 points, or 11%, while the Nifty private bank has dropped 2,481 points or 12%.

On May 04, the RBI raised its key lending rate by 40 basis points to 4.40 per cent with immediate effect. The central bank also raised the cash reserve ratio by 50 basis points. This was the first rate hike in policy rates since August 2018.

 

Nifty Bank has corrected by 11% since the RBI rate hike.
Nifty Bank has corrected by 11% since the RBI rate hike.

According to India Ratings and Research, the RBI's surprise rate hike, which signals a reversal of the interest rate cycle, will weigh on the banking system's credit growth, which was showing signs of revival with an 11 per cent increase.

"The banking system credit growth offtake has shown a significant pick-up in the early part of FY23, with credit growth of 11.2 per cent as of April 8, 2022, compared to 5.3 per cent in the same period in 2021, adding that this is the highest since July 2019," said India Ratings and Research in a report.

Gross NPA's of Private Banks

In the fiscal year 2021, the value of gross non-performing assets of private banks across India amounted to over two trillion Indian rupees. In the fiscal year 2020, for the first time, the value of gross NPA reached more than two trillion Indian rupees. Non-performing assets have posed a big problem for banks in India, and experts point out that this crisis has been long in the making. Since more banks are facing a problem with risky or non-performing assets, the profitability and solvency of banks have gone down, according to Statista.

But, however, here are some private sector banks with low PE multiples and better asset quality.

Karnataka Bank

Karnataka Bank Limited is India's twelfth largest old generation private sector bank. It is an 'A' Class Scheduled Commercial Bank based in Mangaluru, Karnataka, India. It has 11 million customers throughout the country.

Karnataka Bank reported a very good set of quarter ending Dec 2021. The net profits of the bank rose to 146 crores from 125 crores in the corresponding period of the last quarter.

Total income during the October-December period of 2021-22 was down at 1,761.55 crore from 1,878.74 crore in the same quarter of 2020-21. The gross non-performing assets (GNPA) ratio increased to 4.11 per cent at the end of December 2020, up from 3.16 per cent. However, it was down sequentially from 4.50 per cent in the third quarter of 2021.

Net NPAs, or bad loans, rose to 2.45 per cent from 1.74 per cent a year ago but were lower than the 2.84 per cent in the preceding quarter.

Key Numbers ( in Cr)Dec- 2021Sep - 2021Jun-2021Mar - 2021
Total Revenue1,761.51,725.21,759.41,7907
Operating Expenses462.8418.4396.5448.7
Operating Profit159.9218.7178.3 10.5
Profit Before Tax217.8146.446.141.9
Net Profit146.6125.6106.131.4
Gross NPA Ratio (%)4.113.164.504.91
Net NPA Ratio (%)2.452.843.003.18

The bank also has very effective risk management systems in place. All credit exposures above 25 lakh are rated borrower-wise and credit facilities below 25 lakh, & all schematic advances including agri-credit proposals, are rated under the "pool-based approach".

The bank also introduced 2,288 service outlets with 857 branches, one extension counter, 952 ATMs, and 479 recyclers across India as on 30.09.2021. All 36 e-Lobbies and 428 mini e-Lobbies are empowered through Recyclers.

Also, the 'KBL96' rating model has been developed for all sanctions under the digital journey. The bank also has an enterprise-level fraud risk management system (ELFRMS) to effectively control/prevent suspicious online transactions made by customers and other digital channel transactions.

Meanwhile, Karnataka bank has a P/E ratio of 4.64, compared to a sector P/E of 21.98.

City Union Bank

City Union Bank is a mid-sized private sector bank with a strong presence in South India. The bank has a total of 702 branches throughout India.630 branches are located in South India, out of which 486 branches are in Tamil Nadu.

City Union Bank reported a 15.3 per cent rise in net profit at 196 crore in the December quarter on lower provisioning even as total income shrank. In the previous quarter, its net profit was 170 crore.

Key Numbers ( in Cr)Dec-2021Sep-2021Jun-2021Mar-2021
Total Revenue1,195.2 1,224.91,193.11,121.4
Operating Expenses280.4275.9260.2288.9
Operating Profit209.6202.3187.4139.6
Profit Before tax246.1257.121346.2
Net Profit196.1170173111.2
Gross NPA Ratio (%)5.215.585.155.11
Net NPA Ratio3.443.48 3.202.97

The bank's asset quality improved a tad sequentially but deteriorated from a year-ago level. The gross non-performing assets ratio stood at 5.21 per cent at the end of December as against 5.58 per cent three months back, while the ratio was at 2.94 per cent a year back.

Net NPA was 3.44 per cent, compared to 3.48 per cent and 1.47 per cent.

Further, management has indicated potential stressed sectors, namely hotels, lease rental discounting, commercial real estate, etc., which account for a minuscule portion of its portfolio and a portion of which may slip into NPA.

In the last year, due to the COVID pandemic and in the absence of other avenues for growth, management thrust to improve gold loans, which increased by 48% on a YoY basis.

Currently, City Union Bank has a P/E ratio of 13.69, while the sector average is 21.98.

Karur Vysya Bank

Karur Vysya Bank is a Scheduled Commercial Bank in India. It has completed 100 years of operation and is one of the leading banks in India. The bank primarily operates in the treasury, corporate/wholesale banking, and retail banking segments.

As of March 31, 2020, it had 779 branches, a network of 1659 ATMs, and approximately 565 cash deposit machines.

Karur Vysya Bank (KVB) has posted a four-fold rise in net profit during the third quarter of the financial year 2021-22 to 185 crore, as compared to 35 crore during the same period last fiscal.

Net interest income for the quarter improved by 18 per cent to 687 crore for the current quarter from 584 crore for Q3 of FY 2020-21. The net interest margin stands at 3.68 per cent.

Key Numbers ( in Cr)Dec-2021Sep-2021Jun-2021Mar-2021
Total Revenue1,600.11,5611,595.91,565.8
Operating Expenses481.2469.6429.3579.3
Operating Profit206210.7208.633.3
Profit Before tax255.5209.7164.6178.3
Net Profit185.5165.4108.9104.4
Gross NPA Ratio (%)6.977.377.977.85
Net NPA Ratio (%)2.552.99 3.693.41

KVB improved its asset quality during the quarter, with gross non-performing assets (NPAs) falling to 6.97 per cent ( 3,888 crore) of the gross advances as of December 31, 2021, as against 7.37 per cent ( 3,842 crore) in the year-ago period.

Recently, Karur Vysya Bank has bagged two awards for its performance in the area of MSME lending.

The Chamber of Indian Micro, Small and Medium Enterprises, New Delhi, named KVB the best MSME Friendly Bank (private sector) runner up and Best Innovative Bank (private sector) runner up for 2021.

Moreover, as per the shareholding pattern for the July to September 2021 quarter, Rakesh Jhunjhunwala holds 59,83,516 shares or a 4.50 per cent stake in the Karur Vysya Bank.

Karur Vysya Bank has a P/E ratio of 6.05, compared to a sector P/E of 21.98.

Federal Bank

Federal Bank is an old private sector bank based out of Kerala with 1282 branches and 1885 ATMs across various states.

In the March 2022 quarter, Federal Bank reported a 13.2 per cent increase in standalone net profit to 541 crore. The bank had posted a net profit of 478 crore in the same quarter of the previous fiscal.

The net profit (standalone) for FY22 increased by 18.8 per cent to 1,889.82 crore, up from 1,590.30 crore in FY21. The total income in FY22 rose slightly to 15,749.85 crore from 15,716.61 crore.

On the asset quality front, the gross non-performing assets (NPAs) improved to 2.80 per cent of the gross advances as of March 31, 2022, from 3.41 per cent a year ago.

Key Numbers ( in Cr)Mar-2022Dec-2021Sep-2021Jun-2021
Total Revenue3.948.23,926.83,823.64,005.9
Operating Expenses1,1921,108.81,059933.4
Operating Profit333.2430.1420.4485
Profit before tax723700.3619.5493.4
Net Profit540.5521.7460.3367.3
Gross NPA Ratio (%) 2.803.063.243.50
Net NPA Ratio (%)0.96 1.191.121.23

In value terms, the gross NPAs stood at 4,136.74 crore, down from 4,602.39 crore.

Likewise, the net NPAs declined to 0.96 per cent ( 1,392.62 crore) from 1.19 per cent ( 1,569.28 crore).

In the case of Federal Bank, Jhunjhunwala, along with his better half, Rekha, held a 3.65 per cent stake in the private lender. 

 Federal Bank has a P/E ratio of 8.91, compared to a sector P/E of 21.98.

DCB Bank

DCB Bank Limited is a private sector scheduled commercial bank in India.

DCB Bank’s business segments include retail, micro-SME, SME, mid-Corporate, agriculture, commodities, government, public sector, Indian Banks, Co-operative Banks, and non-banking finance companies (NBFC).

DCB Bank posted a 44.87 per cent rise in its net profit at 113 crore for the quarter ended March 2022. The bank had registered a net profit of 78 crore in the same quarter a year ago.

 Key Numbers ( in Cr)Mar-2022Dec-2021Sep-2021Jun-2021
Total Revenue1,034.7996.4967965.7
Operating Expenses274.4264.5245.9227.7
Operating Profit10680.577.481
Profit Before Tax153.2101.988.845.6
Net Profit 113.475.464.933.8
Gross NPA Ratio (%) 4.324.734.684.87
Net NPA Ratio (%)1.972.522.632.82

Total income in the March quarter of fiscal year 2021-22 increased to 1,035 crore, as against 967 crore in the same quarter of 2020-21.

Net interest income during the quarter rose to 380 crore, from 311 crore.

In value terms, the gross NPAs stood at 1,290 crore in the period under review, as against 1,083 crore.

On the other hand, the net NPAs, or bad loans, fell 1.97 per cent ( 573 crore), as against 2.31 per cent ( 594 crore) in the year-ago period.

DCB Bank has a P/E ratio of 8.99, while the sector average is 21.98.

Note: This story is for educational purposes only. Please speak to a financial advisor before investing.

 

Top 10 banks in India by their assets
Top 10 banks in India by their assets