Bank valuation model: ROE-based DDM for Indian private banks
Banks are not valued with DCF — they need a residual-income framework. NIM forecast, credit cost cycle, RoRWA sensitivity. Built off HDFC Bank as the template.
By VK Investing11 SHEETS · EXCEL · 7,500 WORDS WALK-THROUGH
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Banks cannot be valued with a DCF. The reason is not that they don't produce cash flow — they produce vast amounts of it — but that the "free" in free cash flow doesn't apply. A bank cannot distribute its operating cash flow without violating capital adequacy. Growth and distribution are, structurally, in trade-off.
The model uses the framework that bank analysts actually use: a residual income model built on ROE, with NIM as the primary driver and capital adequacy as the constraint on growth.
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