Exploring Banking Stocks with P/E Below 10 and P/B Below 1: Hidden Gems or Red Flags?

Discover which banking stocks with low P/E and P/B ratios could offer potential upside, and which ones may come with hidden risks.

Bank stocks with a price-to-earnings (P/E) ratio below 10 and a price-to-book (P/B) ratio under 1 often suggest that investors are paying less than Rs 10 for every Rs 1 the bank earns. This can make the stock appear inexpensive relative to its profit generation. Similarly, a P/B ratio below 1 indicates that the market value of the bank is lower than its net assets, meaning investors can buy into the bank’s assets at a discount. These low valuation ratios can catch the attention of value investors looking for stocks that might be undervalued compared to their intrinsic worth.

However, while low P/E and P/B ratios can sometimes point to hidden value, they may also hint at underlying challenges. If the stock has delivered negative returns, despite attractive valuations, could signal investor concerns over the bank’s growth prospects or financial stability. A careful examination of the bank’s fundamentals, profitability, and risk factors is essential to understand whether these low ratios represent a genuine investment opportunity or a potential warning sign.

Three Banking stocks:

Union Bank:

Union Bank of India, a diversified financial services provider engaged in banking, government, merchant banking, insurance, and wealth management, posted strong Q2 FY25 financials with revenue rising 13.33 per cent YoY to Rs 32,812.12 crore and a QoQ increase of 4.75 per cent. Net profit saw impressive growth of 33.01 per cent YoY, reaching Rs 4,750.93 crore, and jumped 30.46 per cent over the last quarter. The bank has attractive valuations with a P/E ratio of 5.93 and a P/B ratio of 0.95. Despite a slight YTD decline of 0.40 per cent, its share price has gained 14.26 per cent over the past year.


Jammu & Kashmir Bank:

Jammu & Kashmir Bank, the only private sector bank with lead responsibilities in J&K, reported Q2 net profit growth to Rs 550.92 crore from Rs 381.07 crore YoY, supported by net interest income rising to Rs 1,435.93 crore. The bank’s retail banking segment led income, with 'other retail banking' generating Rs 580.30 crore, followed by corporate banking at Rs 445.21 crore. Notably, the net NPA ratio improved to 0.85 per cent from 1.04 per cent YoY, underscoring asset quality improvements. Valued with a P/E of 5.56 and P/B of 0.92, the stock price has declined -17.55 per cent YTD and -6.6 per cent over the past year.

RBL Bank:

RBL Bank, established in 1943 and operating across five business verticals including Corporate and Retail Banking, saw its Q2 FY25 revenue grow by 19.85 per cent YoY to Rs 4,459.05 crore, with a 4.38 per cent rise QoQ. However, net profit declined by -30.02 per cent YoY to Rs 231.70 crore and dropped -34 per cent QoQ, indicating profitability challenges. With a P/E ratio of 8.33 and P/B ratio of 0.67. Stock has declined significantly, with a YTD return of -42.30 per cent and a one-year loss of -32.56 per cent.