Why FII Outflows Kept Private Bank Stocks From Performing Over The Last 2-3 Years

Added: 2026-05-26

[00:00:00]Aditya Shah, founder Hercules Advisor, joins us now on the show to talk about it.

[00:00:04]Aditya, private versus public. Is the um is the favor turning towards private banks right now?

[00:00:14]Uh so, from my perspective, I will be keen on both both set of banks. I think my my preference would lie towards something like like an HDFC Bank which is trading at about five five to 10-year low valuation.

[00:00:29]Compared with that, from a growth perspective, SBI will continue to do extremely well.

[00:00:34]So, from my perspective, there has to be a mix, but I think the FIIs leaving have have had a big impact on private bank stock prices not performing that well.

[00:00:45]A large chunk of private bank were owned by FIIs, and as they started to move out, we've seen over the period of last two to three years except except ICICI Bank, none of the other banks have really given returns. So, from my perspective, I would be preferring large private sector bank.

[00:01:01]Smaller smaller private sector banks such as Federal Bank, CSB, they're also doing extremely well. And within the PSUs, I would tend to go towards SBI only.

[00:01:10]Yeah, the concern, and good morning to you, Alex, here. The concern that has been raised even after the fourth quarter is that the growth is seeming a little anemic. Uh and of course, there are exceptions to the rule with the couple of banks supporting 15-plus percent loan growth, but it has also been pointed out that in in in those cases, gold loans have contributed quite a bit. So, the question is with this overarching trouble, uh is there going to be a concern in FY '27 on loan growth? How much are you penciling in?

[00:01:43]So, from my perspective, I think the systemic loan growth will be around 10 to 15%. Most banks will be in that range. Of course, as gold prices continue to keep moving up, gold loans will continue to shoot up for a lot of these banks. For example, CSB loan growth has been at about 50% with respect to loan growth within the gold segment. So, I'm not too much worried about the gold segment.

[00:02:05]The the the loan growth is not a problem. Deposit growth is really where the problem really is. There's a sharp contrast of about 5 to 7% of deposit growth. All banks are really struggling out of it. I don't think I don't think a loan growth will be a problem if this if this war continues to go on. I think NPAs there will be a formation of NPAs across the sector for both PSU and private banks. That is where the real concern is. And of course, ultimately as rates rise, loan growth will also slow down. So, from my perspective right now, the major concern is how SME and small NPAs come for these.

[00:02:42]Very quickly, would that therefore mean that banks which have strong underwriting and lending practices, those multiples could hold up even if some of the other multiples were to go down?

[00:02:54]Yes. So, from my perspective, a bank which would lend at about 8%. Let's say an HDFC bank for an SBI or an ICICI bank would be in far better position than a bank who will who would be lending at about 14, 15, 16% because automatically that is profile of the bank is really higher. So, from my perspective, larger banks together with SBI continue to be the top pick. After that, the smaller banks provided valuation is at about one time price to book or one and a half time max, that's where you should be buying.

[00:03:25]Okay. Aditya, thank you so much for speaking with us.