There was a time when the new private sector banks comprising HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank were the only ones that mattered to investors and the “old” private sector banks – the Federals, RBLs, CSBs, LVBs & Karur Vysyas – were hardly ever noticed.
Today, the tables are turning. Stars are emerging from the old private banks, while the new private sector banks have lost quite a bit of their sheen. For two decades, starting from 1995 when the new private bank licences were given, Messrs Deepak Parekh, Aditya Puri, KV Kamath, and a little later Uday Kotak strode larger than life on the financial space and in the stock markets. The combined weight of HDFC Bank, ICICI, Axis, and Kotak once stood at over 80% of the Bank Nifty. Today, that number is around 50%.
ICICI was the first to see its status challenged in 2018, although eight years later, it has re-emerged as the strongest banking stock. HDFC Bank, since it merged HDFC into itself, has seen its star status erode, primarily due to the need to slow its loan growth, give up on its lofty 4%-plus NIMs, and its 2%-plus ROA. A rap on its knuckles came from the Dubai Financial Authority when the bank was barred from business for mis-selling AT-1 bonds. More lately, the bank’s sheen has declined perceptibly with its former chairman resigning after casting aspersions on the bank’s ethics. A clean chit from a legal firm that came on Friday has been rebutted by the rebuffed former chairman. All of this “tu-tu-mein-mein” is already in the price, said a disinterested fund manager who pointed out that the bank’s stock has given no returns for the past five years.
HDFC Bank’s weekend woes slid into the background after Kotak Bank’s CEO Ashok Vaswani announced he won’t seek an extension when his term ends on Dec 31 this year. To be sure, the board may find worthy successors from within or outside the bank, but the sense of uncertainty is bound to dog the stock at least till the successor is named. The other “new” private sector bank, IndusInd, is still reeling from the accounting misreporting during the tenure of its former MD.
In sharp contrast, stars have unexpectedly emerged from the once desultory “old” private sector banks. Federal Bank, after fifteen years under the steady stewardship of former Standard Chartered banker Shyam Srinivasan, is fast emerging on every brokerage’s buy list. Indeed, many a young analyst in these brokerages may not even know that “federal” was once an “old” private sector bank.
Much more dramatic is the change in the fortunes of RBL Bank. The once little-noticed Ratnakar Bank became a “foreign” bank two weeks ago, when the solid UAE-based bank, Emirates NBD, invested a whopping Rs26,000 cr in RBL to buy a 60% stake and become its promoter. Four years ago, when a retired PSU banker, R Subramaniakumar, was chosen to lead the then loss-making RBL, absolutely no investor or fund house even remotely thought such a change possible.
Among other old private banks, CSB has had a decent innings after the Canadian fund Fairfax bought a stake. Indeed, even City Union Bank has begun to appear in the buy list of a few foreign brokerages. And finally, the greatest upsets and challenges to the star private banks are not confined to just the old private banks. The much bigger challenge has come from PSU banks. In the past five years, the Nifty PSU Bank index has given a return of 244%, while the Nifty Private Bank index has risen by just 52% over the same period. And investors and brokerages don’t seem to have had enough. Last week, brokerage Investec titled its report “Prefer PSU banks Among Broad Sector Strength”, broadly arguing that PSU banks will continue to outperform private giants this year too.
It’s possible, as analysts at IIFL and Macquarie bet, that the big three private banks will roar back into prominence this year. But it won’t be like the late nineties or the early 2000’s. The mega stars of yesteryears will jostle shoulders with a bunch of emerging starlets
