A Comparison of the Effects of Key Determinants on Share Prices of India's Largest Public and Private Sector Banks

Great Lakes Herald, Vol. 9, No. 2, September 2015

12 Pages Posted: 21 Nov 2016

See all articles by Rajveer Rawlin

Rajveer Rawlin

M S Ramaiah Institute of Management; Independent; M S Ramaiah Institute of Management

Ramaswamy Shanmugam

PSG College of Technology

Vanashree Bhat

Acharya's Bangalore B-School

Date Written: september 19, 2015

Abstract

The banking sector in India has come under the scanner following some key changes in monetary policy. The recent quarterly reports of several banks have clearly showed a rise in non-performing assets (NPAs) and deteriorating asset quality. With the Reserve Bank of India (RBI) lowering interest rates following slower economic growth, bank share prices have risen sharply. The share price of banks is impacted by both internal and external factors. This paper is an attempt to compare the key drivers of the stock prices of India’s largest public and private sector banks. Bank specific metrics were important drivers of profits at both banks. Risk factors such as gross and net NPAs and capital adequacy ratio were also important for both banks, suggesting that bank share price appreciation could come at the expense of asset quality. Productivity measures were key drivers of the stock price of India’s largest public sector bank SBI, but had no effect on the share price of India’s largest private sector bank, HDFC bank. Asset usage efficiency measures were key determinants of the share price of HDFC bank but not of SBI. The single most important determinant of the share price of SBI proved to be business per employee, a productivity measure while total assets and its key component advances along with deposits were key drivers of profits at HDFC bank. Managers at both banks and their shareholders thus can look at these drivers to develop a broad understanding of what influences stock prices of these two benchmark Indian banks.

Keywords: Stock Price, Determinants, Key Performance Indicators, Indian Bank, Step-wise Multiple Regression

JEL Classification: G00, G20, G21, P34

Suggested Citation

Rawlin, Rajveer and Rawlin, Rajveer and Shanmugam, Ramaswamy and Bhat, Vanashree, A Comparison of the Effects of Key Determinants on Share Prices of India's Largest Public and Private Sector Banks (september 19, 2015). Great Lakes Herald, Vol. 9, No. 2, September 2015 , Available at SSRN: https://ssrn.com/abstract=2872679

Rajveer Rawlin (Contact Author)

M S Ramaiah Institute of Management ( email )

Gate No-8, General Sciences Building 
'C' Block, M S Ramaiah Nagar 
Bengaluru, 560054
India

HOME PAGE: http://https://rajveersmarketviews.blogspot.com/

Independent ( email )

M S Ramaiah Institute of Management ( email )

Gate No-8, General Sciences Building 
'C' Block, M S Ramaiah Nagar 
Bengaluru, 560054
India

HOME PAGE: http://https://rajveersmarketviews.blogspot.com/

Ramaswamy Shanmugam

PSG College of Technology

Avinashi Rd, Peelamedu
Coimbatore, TN Tamil Nadu 641004
India

Vanashree Bhat

Acharya's Bangalore B-School

Lingadheeranahalli
Off Magadi Road
Bangalore
India

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