Valuation gap between public sector and private banks narrows

Price-to-book value ratio of state-owned banks jumped from 0.9x to 1.15x in a day, while private banks traded lower at 3.42x

The rally in public sector bank (PSB) stocks after the announcement of the government’s recapitalisation plan have narrowed their valuation gap with private sector banks. 

Earlier, a typical private bank was nearly four times as expensive as a PSB on average, the gap is now down to 3x. PSBs added Rs 1.19 lakh crore to their combined market capitalisation on Wednesday, taking it past their book value in 2016-17. In contrast, private banks saw a marginal dip in their market capitalisation, led by HDFC Bank.

PSBs are now trading at 1.15 times their book value or net worth per share during 2016-17