Healthier assets or bigger loan book: What matters more for banks?

We often exclude banks from many of our data-driven exercises highlighting market trends. The reason is rather simple: banks need to be treated differently. Banks earn through lending. So, it might seem obvious that to grow and create wealth, they should lend more. However, loan book growth at the cost of asset quality leads to wealth destruction rather than creation. Take, for example, the public sector undertaking (PSU) banks. Their performance over the last decade underscores the importance of asset quality. The destruction era For the uninitiated, here's how the story unfolded. Public sector banks dished out enormous corporate loans in the first few years following the millennium. The strategy worked, too, as most industries were witnessing an upcycle thanks to India's econom