New Delhi, Sept. 16 -- For most companies, investors tend to focus on the price-to-earnings (PE) ratio. For banks, the price-to-book (PB) ratio is often more useful.

Why? A bank's balance sheet is its business. It takes deposits, lends money and earns a return on the capital it holds. That makes book value an important measure for shareholders.

But PB should not be viewed in isolation. A bank can command a higher PB if it generates a higher return on equity (ROE) and grows its book value at a healthy pace.

This is why a bank trading at 2 times book is not necessarily expensive. If it can consistently generate a high RoE, investors may be willing to pay that premium.

The reverse is also true. A bank trading at 1.5 times book may appear...