Banking sector is considered the backbone of the economy of any country. India has recently set a target of growing to $5 Trillion economy and this goal has fallen on the shoulders of the banking sector which represents the growth sentiment of any country. Inorder to achieve this goal the banking sector is eyeing a credit growth rate of 12% on a yearly basis in order to reach this goal.
Although the banking sector is growing by leaps and bounds an investor should deeply check the fundamentals of any organisation before investments. A quick check can be done by looking at factors such as a low percentage of over NPA (Non performing assets) and a strong CASA (Current Account/ Saving account) ratio which should be above 40%. Also the bank should consist of a hefty capital buffer which should always be above 9% as per RBI standards.
The Indian banking sector has been growing at a massive rate of 6% to 14.2% over the past years and in fact it has been growing at the fastest pace in the whole world. Not all the investments are good but some are very promising stocks. We have picked the top 8 banking stocks in India for you.
How to Choose the top Banking Stocks to buy in India in 2023?
We have used the following factors in deciding which banking shares are the best to buy now in India.
One of the easiest ways to identify the best bank stocks to buy is by looking into its market capital. This gives you an insight into the trustability of the bank. A higher market capital shows that its stock is safer to invest in and it also tells that the company has been established for a longer time. Hence higher the market capital better will be your investment.
Return on Asset (ROA)
Obviously a wise investor will want a stock that gives him/her a good profit with a less time frame. This parameter tells you that when the ROA is higher it means that the bank is more efficient in generating profit. This is another important factor while choosing the best private or PSU banking stock.
Return on Equity (ROE)
This parameter shows the financial performance of a company which tells the relationship level between the company’s profit and investors’ return. The top Indian banking stocks have an ROE between 15-20% but to differentiate between banks, higher percentage is better.
Net Non Performing Assets ( Net NPA)
This shows the loan provision for the unpaid debts of the company. This parameter highly affects the profitability and liquidity of the company negatively. Hence to look for the best stocks to buy in the banking sector, you must look for banking stocks with lower Net NPA .
Net Interest Margin (NIM)
This is an indicator of financial stability and growth rate of the bank. A higher NIM is a green flag for investors while choosing which banking stock is the best to buy right now. But keep in mind that a low NIM and a high NPA is a bad combination.
Best Bank Stocks to buy in India in 2023: My best Picks!
Mentioned below are the top 8 banking sectors for long and short term investment with their specific advantages:
HDFC bank is the largest private sector bank in India. According to March 22 filings the bank has assets worth 21.2 Lakh crore. The bank currently has diversified across 6,342 branches and 18,130 ATMs across the country. HDFC currently functions as a brand with a high growth rate paired with a superior class asset quality. The returns provided by the bank are also exceptional in nature.
The loan book of the bank has shown a growth rate of 20% CAGR which is exceptional compared to the size of the institution. However this growth rate hasn’t compensated on the asset quality.
There are 42 asset management companies in India out of which 39 hold stocks in different schemes from the HDFC Bank. This proves its trustability and popularity.
The bank has seen a 666.92% growth in its Net Interest Income throughout the past 10 years. It has also gained 5177% to 2111 levels on the Bombay Stock Exchange with its stock which was listed at ₹40 i.e. three times its issue price. Although being on the third number, HDFC is one of the best private bank stock to buy today as comparing its value assessment.
Value Assessment of HDFC
- Market Capital(Market Cap) : 8.87 Trillion rupees.
- Return on Assets (ROA) : 2.00%
- Return on Equity (ROE) : 16.56%%
- Net Non Performing Assets (Net NPA) : 0.35%
- Net Interest Margin (NIM) : 4.00%
Kotak Mahindra Bank
The bank led by Uday Kotak has positioned itself as a superior financial conglomerate in India. It has a massive network of around 1,600 branches and 2,600 ATMs across the landscape of the country. The profit CAGR of the bank has grown at a rate of 19.5% in the past 5 years. The bank is planning to incorporate an aggressive stance towards customer acquisition and cross selling. This projects the heavy growth sentiment of the bank.
“A private sector lender that has lagged behind Nifty Bank over the past two years could grow up to 26% over the next year and even reach a $100 billion market cap in the next four years, foreign brokerage firm”, Goldman Sachs says in the report.
Even thought Kotak has a relatively smaller market cap it still steals a spot at our top most banking stock to buy now lists. The credit losses are lower than other banks according to recent research. A lot of improvement has been seen in the return ratio as the operating leverage improved the productivity by putting access capital towards advances.
Value Assessment of Kotak Mahindra
- Market Capital(Market Cap) : 3.6 Trillion rupees
- Return on Assets (ROA) : 2.36%
- Return on Equity (ROE) : 12.60%
- Net Non Performing Assets (Net NPA) : 0.64%
- Net Interest Margin (NIM) : 3.91%
ICICI Bank: 2nd Most Profitable Private Banking Stock to buy in India
The bank has positioned itself as a top private sector bank of the country. Currently its assets are around INR 17.5 lakh crores. Apart from that it has a dense network of 5,418 branches across the country and around 13,626 ATMs across the country. The bank has undertaken a significant change in its underwriting practices which can be depicted by the rise of assets paired with a superior quality. This can be confirmed by the fact that the GNPA’s of the bank in FY18 stood at 8.84% which quickly decreased to 3.8% in FY22. These metrics clearly underline the future growth opportunities of the bank and its strong financials.
Ascending to the second position in the list of the best private banking stocks for long and short term is ICICI. The retail segment has continued to increase at an immense rate with a 33% Year on Year earnings growth.
NIFTY bank has been outshined by the great performance of the ICICI bank shares by a massive margin of 4%. ICICI Bank shares have tripled the return to investors over the past five years.
Value Assessment of ICICI Bank
- Market Capital(Market Cap) : 6.15 Trillion rupees.
- Return on Assets (ROA) : 1.84%
- Return on Equity (ROE) : 11.67%
- Net Non Performing Assets (Net NPA) : 0.76%
- Net Interest Margin (NIM) : 3.36%
The bank has positioned itself as the 3rd largest private sector bank in the country. It has a consolidated asset base of INR 11.75 lakh crores. It also has a network of 4,758 branches and more than 16,900 ATMs across the country. After 2019 the bank has restructured itself. While cutting down on losses the bank conducted a series of acquisitions. Also it has started reducing it’s NPAs with an aggressive stance. While in 2019 the NPAs stood at 5.77% it has currently reduced to 2.82%.
Axis bank is one of the largest private banking sector leaders in India. It has had a growth of 54% in standalone profit. One must not over look Axis Bank as it has been said to have good quality stocks which is why we have added it to the best private banking stock list to buy in India 2023.
Value Assessment of Axis Bank
- Market Capital(Market Cap) : 2.92 Trillion rupees
- Return on Assets (ROA) : 1.10%
- Return on Equity (ROE) : 7.08%
- Net Non Performing Assets (Net NPA) : 0.73%
- Net Interest Margin (NIM) : 2.81%
IndusInd bank recently merged with Bharat Financial inclusion thus traversing major avenues across the rural sector. The bank is shifting its focus towards vehicle financing and reducing the overall bad loans. After witnessing a heavy migration of government deposit post the Yes Bank saga the bank is focused on shifting its dependency on public sector based deposits. Even though there was a huge migration of assets due to the Yes Bank episode the bank has maintained a 15% YoY migrated growth ratio.
This bank established in the year 2001 functioned as a financial institution which also worked as a NGO. Its priority focus was getting the unbanked and underprivileged population of the country into the banking sector. Currently the bank is working on a dual growth strategy wherein they are catering to micro finance loans and affordable housing segment of the economy. However the bank is highly concentrated in nature when it comes to business segments and business region which can hinder the growth
City Union Bank
This bank has a high dominance across South India. Compared to other banks it is mid-sized in nature. It has 702 branches across the country. Over the years the bank has shown a healthy performance but it’s also witnessing a loan growth rate. A significant portion of the assets of the bank are turning into NPA and this has resulted into a majority NPA formation. This factor is eating into the profit margins of the bank.
SBI established in 1806 has a long standing heritage and legacy of around 200 years. Currently it has a bank branch across each pin code across the country. It has positioned itself as a Fortune 500 company with a heavy presence across 32 countries. The current market capitalisation of SBI is around ₹4,20,616.94 crore.
SBI is the largest bank in India. A company which has a CAGR 15% is worth investing in but the compounded CAGR of the SBI funds over the past 5 years have increased by 25-40%. SBI is expecting a rebound strongly in the terms of earnings this year hence making this to the list of best bank stocks to buy in 2023.
Other PSU banks have failed to keep their stand and they give up market share to private sectors unlike them SBI has still stood firm. SBI has gained its shares in retail assets, over allowance and also deposits through the last decade. According to CLSA SBI gets an advantage in asset quality. SBI has 40% of its domestic corporate loans given out to PSU and two thirds of the market share from the government and PSU employees.
Value Assessment of SBI
- Market Capital(Market Cap) : SBI has the highest market capital i.e. 5.32 Trillion rupees.
- Return on Assets (ROA) : 0.67 %
- Return on Equity (ROE) : 9.33%
- Net Non Performing Assets (Net NPA) : 1.02%
- Net Interest Margin (NIM) : 2.42%
Things to know Before Buying Any Banking Stocks in India
What is the risk level for banking stocks?
One must keep themselves prepared as investing in the banking sector comes due to its high volatility and risk. So they may rise quickly but also fall quickly.
What is the best time to invest in banking stocks?
One must also look for a perfect time to invest into baking stocks by looking into the economic and financial status of the Indian sector. According to studies one can keep investments at the time when the stock is trading below 2 times trailing price to its book value for good results.
What are 3 other important things to keep in mind while before selecting the best banking stocks?
- You must understand your investment goal and choose respectively.
- You shouldn’t borrow to invest in stocks as it might turn out to be a mistake to take a loan for investing.
- Never skip out on reading all the conditions and terms of the contract.
What are some other good banking stocks to consider buying in 2023?
What did we learn?
- 1 How to Choose the top Banking Stocks to buy in India in 2023?
- 2 Best Bank Stocks to buy in India in 2023: My best Picks!
- 2.1 HDFC Bank: Best Profitable Private Banking Share to buy in India
- 2.2 Kotak Mahindra Bank
- 2.3 ICICI Bank: 2nd Most Profitable Private Banking Stock to buy in India
- 2.4 Axis Bank
- 2.5 IndusInd Bank
- 2.6 Bandhan Bank
- 2.7 City Union Bank
- 2.8 State Bank of India: Best PSU Banking Stock (with largest market cap)
- 3 Things to know Before Buying Any Banking Stocks in India