Why public banks may be a value-buy proposition right now

Private sectors banks have time and again proved that they are stars of the banking sector. Their numbers looks good and hence more often than not, their investors are happy. While the Public Sector Banks (PSB), have been pretty much like struggling actors. But, are times changing for the underdogs?

According to a story published in ET Wealth today , PSBs have also fallen behind private banks in terms of business growth. As far as over all credit and deposit growth goes, private sector banks have performed better than PSBs.

In fact, if you go by rating agency ICRA, year-to-date (YTD) loan growth till December 2012 for PSBs stood at 7.16% as against 15.18% for private banks. Thanks to sector specific delinquencies, PSBs have probably been shy on advances while private banks managed to attracts more depositors as compared to PSBS.

What this means: Simply put there is a yawning valuation gap between the heros and the strugglers.

Your next move: The article says, “It is likely that the PSBs will continue to post weak numbers for a few more quarters. However, once the economy returns to a high growth trajectory, these banks will benefit the most from the recovery. At current valuations, these stocks would likely provide a better upside when the economy improves.”

The article also quotes, Kartik Mehta, VP-research, institutional equities, Sushil Finance, who thinks that PSB stocks are a good bet currently as their valuations are significantly low and they will bounce bank in an improving economy. Read the whole ET Wealth Story here.

We think that you should always take informed decision as far as investments goes. Do have a word with your financial advisor before investing.