Apropos the report "Disconnect between safety image of PSBs and their valuations" (26 June), safety image is a mere perception. This perception arises from government ownership. A majority of Indians who have safety image perception are not aware of the problems of state-owned banks (SoBs).
Should we go by this image perception or by the reality? The reality is SoBs cannot command good valuations due to their low scores on all performance parameters. It is, however, true that being government-owned, they will not run the risk of bankruptcy. The Reserve Bank of India (RBI) has not allowed any private bank to fail in India.
Any private bank's failure would have led to systemic risk. Even other banks would have experienced a run on them. How will the RBI address the problem of the disconnect between the safety image and the valuation of public sector banks?
Improving performance metrics that would contribute to valuations would take time. In fact, this may not happen in the next five years.
K V Rao Bengaluru
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