Best Banking Stocks to Buy in India 2024

Until a few years ago, India’s banking sector was saddled with a mountain of bad loans that hampered its growth and adversely affected banking stocks. But over the past few years, banks have managed to bring down their non-performing assets thanks to regulatory interventions, the implementation of the new bankruptcy law and aggressive loan writeoffs. And with a fast-growing Indian economy aiding growth in deposits and credit, the banking industry is now back on track.

With the overall industry firmly on a growth path, investing in shares of banking companies can also prove beneficial to stock market and mutual fund investors. 

What are Banking Stocks?

Banking stocks refers to shares of publicly listed banks. These include full-service commercial banks, both state-run and in the private sector, as well as small finance banks, a new category of lenders that the Reserve Bank of India created a decade ago to drive financial inclusion. 

The banking industry plays a crucial role in the broader economy. So, banking stocks, too, are important components of benchmark indices such as the BSE Sensex and the NSE Nifty. In addition, there are separate indices for bank stocks, such as the Bank Nifty and the BSE Bankex. One can either invest in bank stocks either separately or gain exposure to such stocks or indices by investing via mutual funds. 

Top 10 Banking Stocks in India:-

Here is a list of the top 10 Banking stocks for 2024:

1. ICICI Bank
2. Axis Bank
3. HDFC Bank
4. Kotak Mahindra Bank
5. IndusInd Bank
6. State Bank of India
7. Punjab National Bank
8. Bank of Baroda
9. AU Small Finance Bank
10. IDFC First Bank

Overview of the Best Bank Stocks in India:-

Here is a list of the top 10 banks to invest in India. To be sure, this list is not exhaustive and investors must do their own due diligence before investing in any stock while also sticking to their own asset allocation plan.

1. ICICI Bank: ICICI Bank was set up in 1994 as a part of the ICICI Group, which traces its origins to 1955. In 1999, ICICI became the first Indian company to be listed on the New York Stock Exchange. ICICI Bank is the second-largest private-sector bank in India and has steadily expanded its business and branch network across India. The bank has shown robust financial performance over the years and is among the favourite banking stocks in India.

2. Axis Bank: Formerly known as UTI Bank, Axis Bank is the third-largest private-sector bank in India. The bank offers a wide range of financial products and services, including retail banking, corporate banking, and wealth management. Axis Bank started in 1994 and has a large footprint in India with more than 5,100 branches and 15,000 ATMs. The bank achieved 14% CAGR growth in total advances and 16% in total deposits during 2017-18 and 2022-23.

3. HDFC Bank: India’s biggest private-sector bank by assets and the most valued lender, HDFC Bank also began as a bank in 1994. Last year, the bank merged its parent, mortgage lender HDFC Ltd, with itself. As of December 31, 2023, the bank had 8,086 branches and 20,688 ATMs across 3,836 cities and towns in India.

4. Kotak Mahindra Bank: Led by Uday Kotak, one of India's most well-known bankers, Kotak Mahindra Bank received a banking licence from the RBI in February 2003. The bank caters to retail and corporate customers across urban and rural India through four strategic business units – Consumer Banking, Corporate Banking, Commercial Banking and Treasury. The bank has grown its business both organically and inorganically through acquisitions such as those of ING Vysya Bank.

5. IndusInd Bank: IndusInd Bank was one of the new-age private banks that began operations in 1994 and is part of the diversified Hinduja Group. Today, it caters to millions of individual customers, large corporations, government entities and PSUs through its network that spans 2,631 branches and 2,903 ATMs spread across India. 

6. State Bank of India: State-run SBI is India’s largest bank by assets and geographical reach. With a 200-year legacy, SBI has almost one-fourth market share in the Indian banking industry. The bank serves over 48 crore customers through its vast network of 22,405 branches, 65,627 ATMs and 76,089 business correspondent outlets across the country.

7. Punjab National Bank: Like SBI and BoB, PNB has a rich history. The bank opened for business on 12 April 1895. As at the end of September 2023, the bank had a network of 10,092 domestic branches, two international branches, 12,645 ATMs with global gross business at Rs 22,51,631 crore. The bank's net profit for H1 FY24 was Rs 3,012 crore, recording a four-fold growth from a year earlier. It has also managed to improve its asset quality with gross NPAs falling to 6.96% as on September 2023 from 10.48% a year earlier and net NPAs improving to 1.47% from 3.80%.

8. Bank of Baroda: The bank was founded in 1908 by Maharaja Sayajirao Gaekwad III of Baroda, and was nationalized in 1969. Today, it is one of the largest PSBs in India and operates through more than 8,200 branches. In 2019, it acquired Vijaya Bank and Dena Bank as part of the government's bank consolidation drive.

9. AU Small Finance Bank: AU Small Finance Bank was established as a commercial bank in 2017, though it started as a non-bank lender in 1996. AU is India’s largest SFB and focuses on retail customers and small and medium enterprises. It operates from 1,049 banking touchpoints across 21 states and three Union Territories. As on 31 December 2023, the bank had a net worth of Rs 12,167 crore, deposit base of Rs 80,120 crore and a balance sheet size of Rs 1,01,176 crore.

10. IDFC First Bank: IDFC First Bank was founded by the merger of the erstwhile IDFC Bank and Capital First on December 18, 2018. Since then, it has transformed from infrastructure to retail banking and increased its CASA ratio from just 8.6% to 49.77% as of March 2023. It also increased its retail deposits from 27% to 76% of total deposits, and set up 809 branches and 925 ATMs. The bank recorded a net profit of Rs 2,437 crore in FY23, with strong capital adequacy of 16.82% and high asset quality.

Performance Overview of the Best Bank Stocks in India

Overview of the Banking Industry

India has a large and vibrant banking industry. At the end of March 2023, the Indian commercial banking space comprised 12 public sector banks, 21 private sector banks, 44 foreign banks, 12 small finance banks, six payment banks, 43 regional rural banks and two local area banks, according to RBI data. 

The consolidated balance sheet of scheduled commercial banks, excluding regional rural banks, grew by 12.2% in 2022-23, the highest in nine years. The main driver of this growth on the asset side was bank credit, which recorded its fastest pace of expansion in more than a decade. Deposit growth also picked up, helping banks offer more credit to borrowers.

While deposit and credit growth has remained high, the gross non-performing assets (GNPA) ratio and net NPA ratio fell to multi-year lows of 3.2% and 0.8%, respectively, in September 2023, according to the RBI.

Why Invest in Banking Stocks?

There are a number of reasons why investors must consider investing in banking stocks in India. Here’s how banking stocks can help investors benefit. 

Growth Prospects: India’s banking industry has grown at a brisk pace over the years and is expected to continue expanding at a steady rate in coming years thanks to a growing economy and rising demand for loans and other financial services. This makes banking stocks an important component of one’s portfolio as these shares can help investors gain from the long-term growth potential of the Indian economy.

Diversification: Banking stocks are a major component of all benchmark indices such as the Sensex and Nifty. And for good reason. While index investors automatically get exposure to banking stocks, other investors would do well to invest in such stocks separately to diversify their investment portfolio.

Steady Returns: Banking stocks are usually less volatile and more stable than many other sectors. This is because banks are the life source of funds for almost all sectors of the economy.
Dividend Payments: Several banks routinely announce dividend payments. This makes them a good option for those who want regular income from their stock investments.

Factors to Consider Before Investing in Banking Stocks in India 

One must take into account several factors before investing in banking stocks in India. These factors can help investors make informed decisions. But to be sure, the list is not exhaustive and investors should evaluate several other parameters before committing their capital. Here are a few key factors investors should keep in mind:

Macroeconomic Conditions: The banking industry is closely related to the overall economy. A fast-growing economy boosts demand for loans from companies and individuals, and vice versa. High inflation can prompt the Reserve Bank of India to lift interest rates, curbing loan demand but incentivizing savers. All these conditions can affect banking stocks.

Regulatory Norms: Banks in India are heavily regulated. Any change by the RBI in regulations related to interest rates, capital requirements, priority sector lending or even leadership appointments could affect banking stocks. Investors should, therefore, keep an eye on regulatory developments and assess their impact on banking stocks before putting their money to work.

Credit and Deposit Growth: Investors should look at the pace at which banks are growing their loan books and deposits, especially the low-cost current and saving account, or CASA, deposits. This gives an idea into banks’ performance and their performance trajectory. 

Net Interest Income and Net Interest Margin: NII and NIM are critical numbers that investors should check when banks announce their quarterly and annual earnings. These indicate how the banks’ core business—lending—is growing. 

NPAs: High levels of non-performing assets (NPAs), or loans that go bad, hurt profitability and can depress banks’ stock prices. On the other hand, low NPAs and low provisions indicate high asset quality and can boost banks’ bottom line.

Segments of Banking Stocks

India’s banking sector can be broadly divided into the following segments:

Public Sector Banks (PSBs): These banks are owned or controlled by the government of India. The country has a dozen PSBs. State Bank of India is the country’s largest PSB and also the largest bank overall. Punjab National Bank, Bank of Baroda, and Canara Bank are other prominent PSBs.

Private Sector Banks: These are lenders that are controlled by private individuals or promoter groups. This list contains big commercial banks like HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank.

Small Finance Banks, Payment Banks: These are new categories of lenders created about a decade ago to provider some basic banking services to unbanked or underbanked people.

Foreign Banks: India has a large number of banks from the US, Europe or other regions that operate through branches or subsidiaries. Citibank, Standard Chartered and HSBC are among the biggest foreign banks operating in India.

Regional Rural Banks and Cooperative Banks: RRBs are typically backed by the state or central governments or bigger commercial banks to provide banking services in villages. On the other hand, cooperative banks are owned by their members, which are usually individuals or organizations with common economic interests.

Conclusion

For investors hoping to expand their portfolio holdings and get a taste of the expanding Indian economy, investing in the finest bank stocks may prove to be a prudent move. 

Despite its difficulties, the banking business has a promising future and a number of excellent lenders to pick from. It is important to think about the company's financial performance, market share, management, and general industry trends before making an investment. So, prior to making any investment selections, a careful study of various factors is crucial.