Public sector banks (PSBs) have shown a better performance than the private banks in terms of return on equity (ROE) from the last two fiscals, reads a report by Avendus Equity Research. This result has changed the trends that had been persisting since the six years prior to this.
According to banking analyst, Chandana Jha. the trend may continue to stay.
The lowest ROE has been reported by the largest private sector lender, ICICI Bank at 9.2% in the March 2008-March 2010 period, while Punjab National Bank (PNB) had the highest, at 24%.
"Due to lower equity dilution, most PSBs have either sustained or increased their RoE during the past decade.
This is in contrast to the decline in RoE for new banks, which was partly driven by frequent capital raising. Despite the lead in loan growth over PSBs, the RoEs of new banks may not diverge and may stay below that of a few PSBs during March 2011-March 2013," Jha said.
"Our profitability has improved over the years and that helped us to maintain higher RoE. We hope to maintain this going forward," said M D Mallya, chairman and managing director, Bank of Baroda.
"The profits of peer banks remain the same. If they have more equity than us, then the RoE can get depressed. In our case, the Tier-I capital is 8.47%, whereas the private peers have much more. The leverage is slightly higher in our case," said B A Prabhakar, executive director, Bank of India.