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INVESTMENTS can be considered in the stock of Karur Vysya Bank. The stock is trading at a discount of more than 20 per cent to its book value. The stock is also trading at a price to earnings multiple of less than five times its earnings.

Given the growth in advances registered by the industry, banking companies look all set to report good growth in profits. The permission given by the Reserve Bank of India to transfer securities to `held to maturity category', which shields financial statements from the decline in prices of Government securities, is another positive factor.

Similar to other banks, Karur Vysya Bank is also poised to derive benefits from these developments and post reasonable growth in profits for the year ending March 2005. In the first half ended September 2004, profits before provision for depreciation in value of investments had grown by a respectable 30 per cent. Growth in advances has also been about industry average and there has not been any deterioration on the non-performing assets front.

Karur Vysya Bank is a play on relative valuation. The stock is trading at valuation that is lower than that of several of its peers. In contrast, the performance of the bank has been marginally above industry average. Any change in regulations regarding ownership structure is also likely to create the least impact on the bank's stock price.

Suresh Krishnamurthy

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