Investor confidence in India’s private banks remains intact—for now.

“These disconnected issues do not take away the confidence in private banks,” said Pratik Shah, partner and national leader, financial services, EY India.Shah’s optimism also stems from stronger regulatory guardrails. He said the regulatory review and oversight process has only got better and more robust over the last few years, and there have been cases where the regulator has not been shy about imposing fines or even shutting down businesses.“I think the environment around us is becoming more and more complex, and business risks are manifesting themselves in a different manner.

I'm not sure I can take this to be a systemic issue in the industry,” Shah said.Historically, private sector banks have commanded stronger valuations, supported by a diversified investor base that includes private equity investors. However, these banks now trade below their long-term averages, while public-sector banks are marginally above historical levels, compressing the valuation premium to levels last seen around 2009-10, analysts at Kotak Institutional Equities said in an 18 March note.State-owned banks, typically seen as laggards over the years due to bad loans, have bounced back in recent years.

Public-sector lender State Bank of India (SBI) trades at a price-to-book multiple of 1.88x for 2026-27, compared with 2.17x for HDFC Bank, according to data from Bloomberg. These were at 1.81x and 2.21x, respectively, in 2024-25.The Nifty Private Bank index has returned 1.42% in the past year, while the Nifty PSU Bank has returned 42.02%.“We like large private banks in the current phase as the recent underperformance factors in the disappointment related to growth and return ratios,” Kotak analysts said.