Mumbai, March 23 -- It has been a testing year for India's private banking sector-IndusInd Bank, IDFC First Bank, and even the largest player, HDFC Bank, have faced crises that eroded investor wealth. Yet they retain investor confidence, with industry executives noting that each crisis is distinct and primarily due to individual errors rather than systemic factors. "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 lenderState Bank of India (SBI) trades at a price-to-book multiple of 1.7x for 2026-27, compared with 2x for HDFC Bank, according to financial services group Macquarie. These were at 2.2x and 5.1x, respectively, in 2024-25. "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. The current phase of troubles began in March 2025, when IndusInd Bank disclosed a Rs.1,959 crore hole in its books due to improper accounting of derivative trades. In February, IDFC First Bank reported a Rs.590 crore fraud at its Chandigarh branch, later revised to Rs.645 crore. On 18 March, HDFC Bank chairman Atanu Chakraborty resigned, raising ethical concerns without further explanation. Governance and processes are expected to be top priorities for a sector that has seen substantial inflows of capital from overseas counters. That said, investors' views seem to remain unchanged even after the mysterious exit of HDFC Bank's chairman and the management and board's attempts to douse the fire. Macquarie spoke to about 25 overseas investors who believe there are no serious operational issues, underwriting problems, or corruption or fraud at the lender. Suresh Ganapathy, managing director and head of financial services research, Macquarie Capital, said in an email to clients on 20 March that the issue is more about who the new chairman will be, whether the current chief executive will continue, and whether he can manage the board and the team dynamics well. Some said that in private-sector banks, a lot of decision-making is decentralized, and the more progressive the bank, the higher the delegation and the greater the empowerment. However, there is a flip side to this. "Some of the recent incidents at private-sector banks have shown that system processes were not followed, and some people found a loophole to exploit. I would not go as far as saying that there is a systemic issue since these incidents have more to do with individuals than these institutions at large," said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services Llp....