Banking Sector – Thematic Report – Nirmal Bang Institutional Equities

Core Business Valuations of Large Banks with Sizeable Subsidiaries

Robust banking businesses at reasonable valuations

Key Points

• 20-year core business valuation trend of large banks: In this report, we have looked at the factors which led to the re-rating of the 5 large banks in the past 20 years across business cycles and interest rate cycles, and then explored the re-rating potential of our investment recommendations.

In this analysis, we have chosen 5 banks–SBI, HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, which have sizeable subsidiaries. In order to calculate the core business valuations trend, we first mined data on the past few years average valuations of major listed companies in non-lending financials, which includes subsidiaries of these 5 banks.

We then calculated the historic subsidiary valuation on a yearly basis based on actual/assumed multiples for these businesses. We then deducted these subsidiary valuations from the historic market capitalization of these banks to arrive at a 20-year core business valuation trend.

• Comparative study of large banks: Following the calculation of core business valuations of the above 5 banks, we did a comparative study of these banks across their business verticals and financial parameters.

Based on the same, following have been our observations:
(1) These 5 banks hold ~50% market share in credit and deposits. While SBI has maintained its market leadership in the past 2 decades across its business verticals, the top 4 PVBs have seen an increase in market share on the credit and deposit side.

(2) While SBI has maintained leadership in SA deposits, large PVBs have a sizeable share in CA deposits due to better transaction banking services, loans to SMEs etc.

(3) NIMs have seen stable/improving trend over a decade due to structural factors like stable CASA ratios, reduced reliance on high-cost borrowings, and improved business mix on the asset side.

(4) SBI and the top 4 PVBs hold 41-80% market share in various digital payment channels. With digitalization and economies of scale, opex ratios are under control.

(5) Asset quality and capital adequacy ratios are the best in 2 decades.

(6) RoAs are at a historic high and valuations are reasonable.

• Top picks in large banks space: From the above analysis we find that SBI, Kotak Bank, and HDFC Bank are expected to deliver healthy return ratios and are trading at reasonable valuations.

From the above calculations we observe that Kotak Bank, which has traded at P/ABV (excluding subsidiary value) of 4.6x/3.4x in the past 20 years/5 years and is expected to deliver RoA of over 2% in FY27E (similar to ICICI Bank), is trading at 1.9x FY27E, which is at a 24.2% discount to ICICI Bank’s valuations.

Even SBI, which is likely to sustain over 1% RoAs, is trading at attractive valuations of 1x FY27E ABV.

HDFC Bank, which has traded at P/ABV (excluding subsidiary value) of 3.6x/2.9x in the past 20 years/5 years and is expected to deliver healthy RoA of 1.9% over FY25-FY28E, is trading at attractive valuation of 2.2x FY27E ABV, which is at a 12.4% discount to ICICI Bank’s valuations.

• Other top picks from our coverage universe: City Union Bank, AU SFB, HUDCO, and Home First Finance.

Full Report

https://www.nirmalbang.com/Upload/Core-Business-Valuations-of-Large-Banks-with-Sizeable-Subsidiaries—Banking—Thematic-Report-14-September-2025.pdf

By Rati J Pandit, CFA, Research Analyst
Nirmal Bang Institutional Equities