The investment metric on which Indian banks appear most eager to ape their Chinese peers is the price-to-truth ratio.
While investors know better than to take the People’s Republic’s published bad-loan ratio of 1.74 percent at face value, they have been reasonably certain that Indian lenders are more honest, following a 2015 review of asset quality by the central bank.
That belief received a major jolt on Friday. Yes Bank, the country’s seventh-largest lender by market value, said in its annual report that in March 2016 — yes, one year ago — its non-performing loans were $768 million according to a central bank review of asset quality, and not the $117 million reported in the company’s audited accounts. Yes shares fell the most in 21 months.
Now, the $3 billion of additional bad loans that ICICI, Axis and Yes have been forced to disclose don’t add significantly to what’s already a $180 billion heap of stressed banking assets, including both nonperforming and restructured loans. Besides, some of last year’s problem loans may haven been written off or provided for; or they may have turned around and become standard assets.
Still, the delayed disclosures do call into question the 23 percent rally in Indian bank stocks in dollar terms so far this year. The MSCI India Financials Index, in which Yes Bank has the third-highest weighting, trades at a price-to-book ratio of 2.4 times, compared with 0.9 for a similar Chinese benchmark. On a price-to-truth basis, Indian banks look overvalued. Read More…