RBI did a strong change in various banking policies, right from capital adequacy to the operational matrix were tightened. In sectors like banking when a regulatory changes takes place, players have to follow a new set of rules. It is not possible for any entity to move from the regulatory regime. Others who take much time to the follow which normally are smaller or mid sized players tend to get attention later. After the daily tightening, the first set of banks which street took note of were larger private sector banks than PSU banks.
There is another set of banks, which do not have the distribution reach which large private banks have, but when it comes to ownership they are not the same as the PSU banks. They have very different kinds of ownership, a sort of quasi private sector banks. These are private sector banks which are operating in particular regions. Infact they have been able to raise their capital with much more ease than what was being expected.
Why were the large private banks to get rated again first ? The reason, they had been following more conservative lending practices and their quality of loan book was extremely very strong. So, they have been very strong for a long time and because of their ownership pattern, they have been witnessing sharp competition of selling if there is any event which is not what the street had expected, pretty much what we had seen in HDFC bank recently.
For PSU banks, which were the main reason for the whole regulation and operational policy rejig, as their quality of loan book was under extreme stress. They took more time, both because of their inefficient decision making and also the fact that they went through a phase of mergering. After a very long phase of underperformance, the PSU banks have seen a strong rating and have performed very well.
Now coming to the third set of banks, which as explained above do not have the distribution reach which large private banks have, but when it comes to ownership they are not the equal as the PSU banks. They have very different kinds of ownership, a sort of quasi private sector banks.
Overall, the stock must have an overall rating of either a “Strong Buy”, or a “Buy” or a “Hold”.