Best Banking Stocks to Buy now in India 2024

In this article, we will discuss

Importance of the Banking sector in India

Banking sector is the backbone of the economy which also goes through its own phases of ups and downs. When everything in the economy is rosy, lending and borrowings boom and this in turn leads to healthy growth in banks. And when going gets tough, defaults rise and this leads to increase in bad assets (bad loans). Prime Minister Narendra Modi set a USD 5Tn economy target for India Inc. This target will not be able to achieve without the assistance of a strong banking industry and a healthy growth in credit.

While considering an investment in financials especially in the banking space, utmost importance is placed on management’s understanding of resilient growth-risk matrix. A bank should ideally be cherry-picked on the sheer balance between garnering market share and not distorting the risk matrix in place in order to chase market share. One should carefully look at the banking players keeping in mind the fundamental historical performance of these banking players and those players that have managed to show certain degree of predictability in their financial performance. Investors should consider growth in profitability, color and growth of advances and deposits along with adequate buffer capital and trend of non-performing asset and NIM while investing in banks. Hence, one should carefully choose to look at banks with matrix such as the formation of low net NPA (i.e. between 0.30%-2%) over the years, strong CASA ratio (current account and savings account ratio) which is above 40%, have sufficient capital buffer in terms of CRAR constantly well above RBI standards of 9%, consistent and robust net interest margins (i.e. above 3%) along with consistent growth in advances as well as deposits (nearly above 10-20% YoY growth).

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List of Best Banking Stocks to Buy now in India

Sr no.Company nameCMP 16/05/2024BSE Scrip CodeNSE SymbolRatingsIndustry
1AU Small Finance Bank Ltd.621.7540611AUBANK5Bank - Private
2Axis Bank Ltd.1140.15532215AXISBANK4Bank - Private
3Bandhan Bank Ltd.179.65541153BANDHANBNK4.5Bank - Private
4Bank Of Baroda263.2532134BANKBARODA1Bank - Public
5HDFC Bank Ltd.1460.15500180HDFCBANK5Bank - Private
6ICICI Bank Ltd.1131.2532174ICICIBANK4.5Bank - Private
7IDFC First Bank Ltd.77.04539437IDFCFIRSTB2Bank - Private
8IndusInd Bank Ltd.1409.65532187INDUSINDBK4Bank - Private
9Kotak Mahindra Bank Ltd.1671.9500247KOTAKBANK5Bank - Private
10Punjab National Bank125.05532461PNB1Bank - Public
11State Bank Of India811.9500112SBIN3Bank - Public
12The Federal Bank Ltd.164.05500469FEDERALBNK4Bank - Private

HDFC Bank

HDFC Bank is one of India’s top private-sector banks. As of March 31, 2024, the bank’s consolidated total asset was at INR 36.17 lakh crore. In India, the bank operates 8,738 branches and 18,130+ ATMs.

The bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies. 

HDFC Bank has long been regarded as a benchmark in the banking industry. Despite RBI-induced credit card market share losses and investor concerns about changes in top leadership, HDFC Bank is a rock-solid high-growth banking brand with excellent asset quality and best-in-class return ratios.

Despite the sheer size of the bank, it has consistently delivered astonishing loan book growth and has gained market share. Its loan book has increased at a CAGR of 20% in the past five years. This phenomenal rise has not come at the expense of poor asset quality. This is visible from its GNPAs which have remained best-in-class and have been in the range of 1.2 to 1.4% in the past five years.

With the Pandemic behind us, the bank has stated its intention to ramp up its retail loan book. With the Merger being completed, the mighty mortgage book of HDFC Ltd is transferred to HDFC Bank. HDFC Bank’s loan book now has 61% mortgage loans out of total retail loans. This long-tail product would aid the bank in cross-selling and lowering its risk-weighted assets thus being able to effectively use its capital. The Bank would face near term headwinds like pressure on Margins and some short-term hiccup on asset quality. However, this is transient in nature. The stock has corrected significantly and thus appears even more attractive at current valuations. 

Kotak Mahindra Bank

Uday Kotak led, Kotak Mahindra Bank is one of India’s leading financial services conglomerates, providing a wide span of various financial and banking solutions with a reach of 1,948 branches and 3,291 ATMs across India. Kotak Mahindra Bank, too, emerged as a player who adopted a prudent and cautious approach, targeting only high-rated customers and sectors. This aided the bank’s low levels of bad loan formation over the years (Net NPA at 0.34% as of FY24). This banking behemoth has managed to achieve consolidated profit growth of 25% a QoQ in Q4FY24. Bank’s deposit franchise continues to be granular and robust with deposit accretion staying healthy with an industry-leading CASA ratio of 45.5%.

Kotak Bank has maintained its cautious stance towards unsecured retail, credit cards, and small business lending. Out of total advances bank’s 45% of advances are given to the consumer segment followed by commercial & corporate banking 23% & 22% respectively. Digitalization is the backbone of the bank’s growth strategy and the company has been investing and enhancing its technology armor. Future growth is expected to be boosted by expanding distribution, deeper channels, and robust digital infrastructure. The bank has proven its stable leadership, strong liability franchise, best-in-class margins, and cautious underwriting measures.

Uday Kotak in his recent comments has highlighted management’s intent to be more aggressive and concentrate on the asset side with higher customer acquisition, deepening relationships and cross selling. The bank has proven its stable leadership, strong liability franchise, best-in-class margins and cautious underwriting measures.

ICICI Bank

ICICI Bank is one of India’s top private-sector banks. As of March 31, 2024, the bank’s consolidated total asset was at INR 23.6 lakh crore. In India, the bank operates 6,371 branches and 17,037 ATMs.

The bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies.

Post the joining of Mr. Sandeep Bakshi in Oct’18, the bank has been on a transformational journey. The bank has significantly improved its underwriting practices and it is clearly visible from its improving asset quality numbers. The bank’s GNPAs stood at 8.84% in FY18 and now stand at 2.16% as on FY24.

ICICI Bank has altered itself from a corporate-focused bank to a retail bank in the last 6 years. This would result in a sustainable lower risk high yielding lending book. The bank loan’s retail share has increased to 54.9% in FY24.

The bank’s Net Interest Margin (NIM) has been on a consistent rise thanks to its change in loan mix and steady fall in its non-performing assets. Over the last three years, the bank’s NIM improved to 4.53% in FY24. This in turn has resulted in an improved Return on Equity (ROE) of 18.7% from 8.8% in FY24.

The banking sector seems to be coming out of the woods with Industry credit growth picking up at pace. ICICI Bank being one of the biggest banks in India is bound to be a key beneficiary of demand pick-up. This was visible in its strong credit growth of 16.8% in FY24.

Axis Bank

Axis Bank is the third largest private sector bank in India. As of March 31, 2024, the bank’s total asset was at INR 14.77 lakh crore. In India, the bank operates 5,377 branches and 16,026 ATMs and Cash deposits/Withdrawal machines.

The bank offers a wide range of banking products and financial services to retail and commercial and wholesale customers through a variety of delivery channels.

Mr. Amitabh Chaudhry joined Axis Bank as MD and CEO in January 2019, after heading HDFC Life for nine years. He joined at a time when the bank was facing a lot of legacy issues. He brought in new hunger within the bank and had a two-eyed focus both on growth and asset quality issues. A series of acquisitions, capped by Axis’s USD 1.64 billion buyouts of Citi’s consumer business is a testimony of new-found aggression. When he joined the bank’s Gross non-performing assets stood at 5.77% while they now stand at 1.43% which is a testimony to cleaning the bank’s legacy issues.

The Bank’s financial performance has been improving quarter by quarter. The bank’s total assets stood at INR ~7,60,000 IN March 2019, while in March 2024 it stood at INR 14,77,209 crores growing at a CAGR of ~14.22%. The return on assets of the bank improved to 1.84% in FY24 from 0.88%, while its Return on Equity improved to 19.29% from 11.33%. The bank fulfilled its ROE target of 18%. The bank’s retail portfolio has witnessed significant improvement which has been the management’s focus in the past three years and it reached Rs 5.8 trillion in FY24. Owing to low GNPAs and adequate provisioning the NNPA of the bank currently stands at 0.31% vs 2.36% five years ago.

Axis Bank has demonstrated improvement in its asset quality, NIM, and Profitability in the past few years. The bank has also changed gears in building digital infrastructure and has made investments in the same. The bank’s ongoing efforts to expand its asset portfolio in a targeted way focus on the mobilization of low-cost granular deposits, declining credit costs, margin expansion, and an improved return ratios matrix are encouraging signs for future growth in earnings.

The banking sector is standing at the cusp of a broad-based credit up-cycle and the tailwinds are coming in from all directions. The System credit growth has been in double digits since July 2022 and the momentum is expected to sustain. The retail loan book has been growing strong and the growth in corporates are also showing signs of revival. The asset quality of the banks is in their best shape in a decade and thus the provisioning has reduced. This is aiding the net profits of banks. The increasing repo rates by the RBI in order to control the inflation has aided the margins in the past year. Quality banks with clean balance sheets are expected to continue to do well.

IndusInd Bank

IndusInd Bank in the year 2019 merged with Bharat Financial Inclusion making it a perfect fit to the Bank's rural banking and microfinance theme. Backed by solid domain knowledge and coverage, the Bank is able to make huge strides in vehicle financing. It has managed to contain and reduce its bad loans over a period of years along with consistent double-digit growth in profitability and net interest income.

IndusInd Bank is focused on increasing retail lending, reducing dependency on large deposits from government & corporates, and maintaining sustainable liquidity under the newly appointed MD & CEO Mr. Sumant Kathpalia. Bank’s CASA ratio is at 42% one of the best among private sector banks in India. Its provision coverage ratio of 71% helps the bank withstand shocks arising out of the COVID-19 pandemic. After the Yes Bank saga, IndusInd Bank witnessed the migration of large deposits from government & corporates to larger banks, however, it did manage to bring the migrated deposit reporting 14% YoY growth in the deposit base. Bank has managed to maintain their NIMs at 4.26% with a slower pace of NPA formation (i.e. NNPA at 0.57%).

Bandhan Bank

Bandhan Bank commenced its operations as an NGO to cater to microfinance activities in 2001. Bank, over the years, focused on serving the unbanked and under-banked population of India. It has managed to offer regular banking services, microfinance, MSME, and affordable housing finance to urban, semi-urban and rural customers. The bank is a sheer outlier in the banking segment by asset quality, loyal customer base, strong capitalization and highly experienced management team catering to rural areas to bank the unbanked population. In order to couple the stellar organic growth with inorganic growth opportunities, the bank completed its merger with Gruh Finance which would help to foray into the affordable housing segment in India. Net interest income has grown at a CAGR of around 23.5% in the last 5 years.

Bandhan Bank being focused on under-banked and unbanked population has high exposure close to 52% in micro loans segment (now Emerging Entrepreneurs Business) of overall loans. With 57% concentration, business-wise as well as region-wise, makes them highly dependent on performance of one single business segment and single region. However, due to their strong liability franchise, deep customer connect (50% exclusive borrowers, 80% borrowers served by bank and one other lender), high customer vintage (50% borrowers are more than 4 years vintage) and long lasting track record makes Bandhan Bank a strong contender for growth in Indian banking space.

City Union Bank

City Union Bank is a mid-sized private sector bank with a strong presence in South India which has consistently achieved healthy growth despite various challenges faced by the industry. City Union Bank being a mid-sized bank stands out amongst peers. The bank operates with a total of 727 branches across India. 644 branches are located in the southern region out of which 495 branches are in Tamil Nadu. It has managed to achieve low double digits in net interest income and has maintained NIMs at 3.50% in Q3FY24 with Net NPA at 2.19%. CUB’s return on asset stood at 1.49% and return on equity stood at 12.57% IN Q3FY24. Given its healthy performance over years, one cannot ignore muted loan growth as well as slow down in deposit growth.

Further, recently management has indicated potentially stressed sectors namely hotels, lease rental discounting, commercial real estate, etc. which account for a miniscule portion of its portfolio and a portion of which may slip into NPA. It is expected that elevated NPA formation may still weigh on margins in the near term. The bank's majority of exposure (i.e. approx. 10%) comes from the textile, metals, and paper products industry and any economic downturn in these industries may create pressure on asset quality. However, it is expected from past experience that given the backing of experienced and robust management the bank would be able to sail through these uncertain times. COVID-19 has raised doubts about the banking sector’s ability to grow strongly with sound asset quality for the near term. Recently, prudent banks are preparing for an unforeseen rise in NPA which has kept provisions elevated impacting profitability and, in the effort, to be proactive many have already raised buffer capital. The already lagging economy kept business growth muted and this was further accentuated by lockdowns. The moratorium by RBI has certainly kept asset quality stable though revival in repayment when the moratorium ends remains an overhang. A moratorium is expected to create a new cycle of bad loans in the entire banking industry.

The sector as whole is likely to witness new NPLs especially from industries like airlines, hotels, entertainment, leveraged corporates in real estate, power, NBFCs as well as unsecured retails to an extent. Hence, the process of recovery could certainly be delayed. However, in order to provide further support to the borrowers, banks have provided one-time loan restructuring scheme. But how that works and how many borrowers repay their loans only time will tell. The possibility of defaults will certainly pressurize this sector as a whole but the moat and ALM experience that each of them carry will certainly enable growth over the long term.

Watch our video on how to analyse and pick Banking Stocks for investments

The Impact of COVID-19 on the Banking Sector

COVID-19 has raised doubts on the banking sector’s ability to grow strongly with sound asset quality for the near term. Recently, prudent banks are preparing for an unforeseen rise in NPA which has kept provisions elevated impacting profitability and in the effort to be proactive many have already raised buffer capital. The already lagging economy kept business growth muted and this got further accentuated by lockdowns. Moratorium by RBI has certainly kept asset quality stable though revival in repayment when the moratorium ends remains an overhang. Moratorium is expected to create a new cycle of bad loans in the entire banking industry. The sector as whole is likely to witness new NPLs especially from industries like airlines, hotels, entertainment, leveraged corporates in real estate, power, NBFCs as well as unsecured retails to an extent. Hence, the process of recovery could certainly be delayed. However, in order to provide further support to the borrowers, banks have provided one-time loan restructuring scheme. But how that works and how many borrowers repay their loans only time will tell. The possibility of defaults will certainly pressurise this sector as a whole but the moat and ALM experience that each of them carry will certainly enable growth over the long term.

Model Portfolio

In order to get exposure to the best Indian banking stocks, you would need a total of Rs. 23,935  for the below-curated portfolio as of 16 May 2024.

Company NameWeightageCMP (as on 16 May, 2024)QuantityTotal (Rs.)
HDFC Bank24%1460.1545840.6
Kotak Mahindra Bank14%1671.923343.8
ICICI Bank38%1131.289049.6
Axis Bank24%1140.1555700.75

 

A detailed table with various parameters for Best Bank Stocks to Buy now in India

Sr.No.Accord CodeCompany NameIndustryMarket Cap, 16 May 2023P/B Friday, 16 May 2023ROE (%)ROA (%)NIM (%)GNPA (%)NNPA (%)PAT as on Q4FY23PAT as on Q4FY24YoY GrowthAdvances as on Q4FY23Advances as on Q4FY24YoY GrowthDeposits as on Q4FY23Deposits as on Q4FY24YoY GrowthBSE Scrip CodeNSE SymbolCMP Friday, 16 May 2023
1286335AU Small Finance Bank Ltd.Bank - Private                                          46,171.953.6515.520.355.451.670.55424.632370.74-13%                                      46,095.26                                      73,162.6659%                                   52,584.62                                   87,182.1266%540611AUBANK621.7
2132215Axis Bank Ltd.Bank - Private                                      3,51,834.172.258.7724.161.430.31-5728.427129.67-224%                                 8,68,387.54                                 9,99,333.4815%                               9,45,824.72                            10,67,102.4013%532215AXISBANK1140.15
3279527Bandhan Bank Ltd.Bank - Private                                          28,933.021.3411.880.487.27.022.21290.57732.718152%                                      74,487.19                                 1,02,027.7037%                                   81,898.27                               1,12,079.2337%541153BANDHANBNK179.65
4132134Bank Of BarodaBank - Public                                      1,35,955.111.1914.921.253.532.920.684775.334886.492%                                 9,63,651.83                              10,88,983.4013%                            12,34,682.00                            13,51,801.849%532134BANKBARODA263.2
5100180HDFC Bank Ltd.Bank - Private                                   11,10,247.682.4517.240.493.441.240.3312047.4516511.8537%                              16,61,949.29                              25,65,891.4154%                            18,82,663.25                            23,76,887.2826%500180HDFCBANK1460.15
6132174ICICI Bank Ltd.Bank - Private                                      7,95,038.723.1617.712.364.42.260.459121.8710707.5317%                              10,83,866.32                              12,60,776.2016%                            12,10,832.15                            14,43,579.9519%532174ICICIBANK1131.2
7278580IDFC First Bank Ltd.Bank - Private                                          54,484.051.6910.601.036.351.880.6802.62724.35-10%                                 1,17,857.80                                 1,94,592.3765%                               1,05,539.63                               2,00,570.2090%539437IDFCFIRSTB77.04
8132187IndusInd Bank Ltd.Bank - Private                                      1,09,662.561.7414.541.94.261.920.572040.512346.8415%                                 2,39,051.53                                 3,43,298.2744%                               2,93,349.47                               3,84,585.6731%532187INDUSINDBK1409.65
9100247Kotak Mahindra Bank Ltd.Bank - Private                                      3,32,392.032.5614.190.745.281.390.343495.594133.318%                                 3,04,473.60                                 4,30,351.5841%                               3,10,086.89                               4,45,268.7644%500247KOTAKBANK1671.9
10132461Punjab National BankBank - Public                                      1,37,802.861.353.320.773.255.730.731158.613010.27160%                                 8,37,458.98                                 9,41,762.4712%                            12,90,347.07                            13,79,225.247%532461PNB125.05
11100112State Bank Of IndiaBank - Public                                      7,24,633.871.8718.441.363.62.240.5716694.5120698.3524%                              32,67,902.13                              37,84,272.6716%                            44,68,535.51                            49,66,537.4911%500112SBIN811.9
12100469The Federal Bank Ltd.Bank - Private                                          40,020.031.3315.360.33.212.130.6902.61906.30%                                 1,49,951.46                                 2,18,110.2845%                               1,81,677.52                               2,52,455.0239%500469FEDERALBNK164.05

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