Private bank returns may surpass PSBS'

CLSA says banks have strongest balance sheets in over a decade

- TANMAY TIWARY

Indian banks are currently enjoying their strongest balmarked by considerable improvements in asset quality and provision buffers, international brokerage CLSA has said in a note.

With sector profitability quadrupling over the past decade and Return on Equity (ROE) at its highest level since FY11, standing at 15 per cent on average for the sector, analysts led by Piran Engineer of the brokerage believe that Indian banks are well placed after "a roller-coaster decade".

CLSA expects private sector banks, which have been stock market laggards over the past few months, to give better returns ahead, given a good business outlook and inexpensive valuations (10-15 times price to earrings (PE) versus the Nifty50 at 18 times). The brokerage highlights ICICI Bank and IndusInd Bank as its top picks.

Among the key factors that have kept CLSA bullish on Indian banks are cleaner balance sheets and record profits. Banks, according to CLSA, have much stronger balance sheets today as compared to five or ten years ago. Besides, not only are they well-capitalised, they also have the lowest net nonperforming loan (NPL)/net worth in more than a decade.