If you want to invest in Indian private banks, we’ve got you covered. Our list of the best private-sector bank stocks is like a map to help you start building a strong investment collection. These stocks can be like building blocks, helping you reach your long-term money goals. Let’s dive into the world of private-sector banking and discover your investment possibilities.
The Context
In India, banks and banking have been separated into various groups.
Each group has its own advantages and limitations as they target different markets. Some operate in rural and urban areas, while others focus solely on the rural sector. However, the majority only provide services in major cities and towns due to higher profitability. The Indian banking system is vast and comprises 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural cooperative banks, including cooperative credit institutions.
Private sector banks, such as ICICI Bank, Axis Bank, and HDFC Bank, have become significant players in India’s retail banking market, displacing nationalized banks from their dominant positions. Although all private sector banks were initially formed with government assistance, they are now for-profit companies with shareholders.
As of January 2022, India had over 235,000 ATMs, with nearly half of them located in rural and semi-urban areas. Digital disbursements have increased fivefold, leading to the prediction that India’s digital lending is set to reach $1 trillion by FY23.
Although bank stocks may be excellent long-term investments, investors should be aware of risks such as interest rate changes and recessions before investing.
Here’s our list assortment for the top 10 Indian Private Sector Banks –
1. HDFC Bank Ltd
In the nation’s payments ecosystem, HDFC is the dominant private sector bank in India.
A card issued by HDFC Bank is used for every third rupee spent on a card. That would be comparable to Hindustan Unilever in the banking sector in FMCG terms.
They have issued almost 3.21 Crore debit cards and 1.45 Crore credit cards.
Across India, they currently have over 17 Lakh merchant acceptance points on the acquiring side & they hold a sizable market share, accounting for about 50% of the volume of electronic cards. The Housing Development Finance Corporation Limited (HDFC) was among the first to receive “in-principle” approval from the Reserve Bank of India (RBI) to set up a bank in the private sector.
Founded in August 1994 under the name “HDFC Bank Limited,” HDFC Bank is a publicly traded banking organization with its registered office in Mumbai, India.
Retail banking, wholesale banking, and treasury operations are just a few of the banking and financial services it offers.
Promoter HDFC Ltd. owned 19.32% of the company as of September 30, 2020. In India, HDFC Bank Ltd. (HBL) is now the biggest private-sector bank.
The bank’s overall balance sheet size as of March 31, 2020, was Rs. 15,30,511 Cr.
Fun fact – The issue was listed at roughly 40 rupees, three times its offering price, after being oversubscribed by 55 times. The cost right now is around Rs. 1500 (September 2022).
Its return since listing, after accounting for bonuses, stock splits, etc., is a staggering 26% annually. In 2001, its shares were also admitted to trading on the NYSE.
2. ICICI Bank Ltd
ICICI Bank is a large private sector bank that provides retail, SME, and corporate customers with a diverse array of financial products and services. The bank now has a network of 15,200 ATMs and 5,300 branches throughout India with 30% of its branches located in metro areas.
Their overall retail book is made up of 49% mortgage loans, 15% rural loans, 14% auto loans, 10% personal loans, 8% business banking, and 4% credit cards. The USA, Singapore, Bahrain, Hong Kong, Dubai, China, the UK, Canada, and Germany are among the countries where ICICI Bank has business outside of its home country.
Through its fully-owned subsidiaries, it conducts business in Canada, the UK, and Germany. 11% of the bank’s total consolidated advances are international advances. Additionally, the bank has broad exposure to numerous industries. The top sectors include finance (10%), banks (7%), petroleum (5%), electronics (5%), infrastructure (4%), and other sectors.
This is compared as a percentage of the bank’s overall exposure. The bank has issued about 1 crore credit cards to date.
In collaboration with Amazon, it also issues co-branded credit cards and has so far issued 14 lakh cards.
Fun fact- The abbreviation ICICI stands for Industrial Credit and Investment Corporation of India.
3. Kotak Mahindra Bank Ltd
Providing a comprehensive range of banking and financial services, Kotak Mahindra Bank is a financially diversified company that offers retail banking, corporate banking, investment banking, stock trading, auto financing, advisory services, asset management, life insurance, and general insurance.
Presently, this private sector bank operates ~1,600 branches & ~2,600 ATMs in India. While 55% of its branches are dispersed over urban, semi-urban, and rural areas, 45% of them are found in major cities.
While the East only makes for 8% of the total branch network, the North, East, and West account for about 30% of all branches. Additionally, it opened its first overseas location in Dubai in 2019.
The bank has an active customer base of ~2.3 crore users. The company receives 74% of its fees from general banking, 21% from distribution and syndication, and the remaining 5% from other sources.
Digital banking has been a priority for Kotak Mahindra. In FY20, it opened 70% of brand-new accounts online. Almost all RDs and 84% of FDs were booked through digital channels and 73% of credit cards were also sourced digitally from the bank.
The bank has a significant presence in a variety of financial services, including consumer, business, and wholesale banking products.
All financial operations are carried out through its fully-owned subsidiaries, such as Kotak Mahindra Prime Ltd., Kotak Mahindra Investments Ltd., Kotak Securities Ltd., and Kotak Investment Advisors Limited, among others.
Fun fact – The Kotak Mahindra Bank was founded by Indian billionaire Uday Kotak.
It has been reported that Uday Kotak received aid from Anand Mahindra (M&M) when he first set out on his quest to launch his own company. M&M provided him with capital for the startup, which Kotak still views as one of his best moves.
4. Axis Bank Ltd
In terms of size, Axis Bank is India’s fourth-largest private sector bank.
The Bank provides a full range of financial services to customer groups including large and mid-sized corporations, MSME businesses, agricultural enterprises, and retail businesses. Currently, this private sector bank has 4,586 locations, with the majority of those being in the south.
The remaining branches are spread out throughout urban, semi-urban, and rural locations, with 30% of them located in metropolises. Its branch network has grown from 2,900 branches in FY16 to 4,600 branches in FY21.
In the entire country, it runs 17,500 ATMs and cash deposit/withdrawal machines.
In terms of the retail book, home loans make up 36%, followed by auto loans (13%), rural lending (12%), personal loans (12%), loans secured by property (9%), credit cards (5%), small business banking (5%) & others (8%).
In FY20, digital sources accounted for 71% of new savings accounts. 78% of cards and 72% of FDs came from digital sources. In India, the bank holds a 19% market share for UPI transactions, a 17% market share for mobile banking, and an 11% market share for credit cards.
Additionally, the bank formed a strategic alliance and signed a contract with Max Financial Services to buy a 30% stake in Max Life Insurance, subject to necessary regulatory approval. The Competition Commission finally gave it the go-ahead to purchase a 20% stake in Max Life Insurance in 2020.
Recently, Citibank decided to restructure its operations in India and the Asia Pacific region. Axis Bank will now manage Citibank’s business.
Entailing Rs. 12,325 crore worth of transactions, Citi and Axis Bank will consolidate their wealth management, personal loans, and credit card divisions, which cater to the wealthy market. The transaction involves the transfer of Citi India’s retail customer accounts and personal wealth management verticals to Axis Bank.
Credit cards make up the majority of the transaction. Since Citigroup first had a presence in India in 1902 and introduced its consumer banking subsidiary in 1985, it is certainly the end of an era for Citibank. Following the acquisition, Axis Bank will have access to 10.6 million cards, over 2.3 lakh premium customers, and 28.5 million savings accounts.
Fun fact – The average age of Axis Bank’s 37,901 workers is 29 years old, and the management is actively encouraging women to fill gaps at the mid and senior levels. As a result, the bank has converted into a millennial bank with a young image. [Source: Anand Adhikari; Business Today]
5. IndusInd Bank Ltd
As a commercial bank, IndusInd Bank Limited was established in 1994 by the Banking Regulation Act of 1949.
The IndusInd Bank was established in Mumbai in April 1994 and was the country’s first private sector bank. In addition to conducting treasury operations, the publicly traded Bank offers a wide range of banking products and financial services to business and retail clients.
The Bank is active throughout India, including in the country’s international financial service centers. With the primary goal of serving the NRI community, IndusInd Bank Ltd. India was established under the leadership of Srichand P. Hinduja, the head of the Hinduja Group of Companies.
The bank currently runs a network of 1915 branches, 2,835 ATMs, 840 auto financing marketing outlets, and 2249 microfinance branches. The bank’s branch network has nearly doubled in the last 5 years from ~1,000 to 1,915.
Presently, IndusInd has a customer base of ~2.5 crore users. The bank’s lending portfolio is diverse, with 57% of its loans going to its consumer finance business and the remaining 43% to corporate and commercial banking.
The majority of the bank’s fees—56%—come from consumer banking, followed by corporate banking (29%) and trading and other income (15%). Some of the bank’s areas of specialization include diamond finance, microfinance, and vehicle finance.
It sees MSMEs, NRI banking, and wealthy banking as some of its growth drivers.
Fun fact- The name ‘IndusInd’ Bank was inspired by the Indus Valley Civilization – one of the greatest cultural examples of a combination of innovation with sound business and trade practices.
6. Bandhan Bank Ltd
Incorporated in 2014, Bandhan Bank is a commercial bank focused on serving underbanked and underpenetrated markets in India.
The company has a presence all across India and provides a variety of asset & liability products and services as well as banking services and products intended for both general and micro banking. Bandhan Financial Services Pvt. Ltd (BFSL) was the company’s first name when it was founded in 2006.
BFSL had the title of largest NBFC-MFI in India up until 2014 when the RBI granted the company a banking license. The whole microfinance portfolio of BFSL was moved to Bandhan Bank’s records after the bank began operating in 2015. This bank has a presence in 548 cities across 34 states and union territories.
It has 1,176 branches and 4450 banking units under operation. The eastern and northeastern regions account for 57% of banking locations, while semi-rural and rural areas account for 73% of these locations. Currently, Bandhan Bank is attempting to diversify its asset holdings through the use of cutting-edge underwriting and collection techniques.
They also intend to combine Current and Savings Accounts (or “CASA”) by enhancing client involvement via the use of analytics and digital technology.
Fun fact – Bandhan began as an NGO before graduating to become a non-banking financial institution in 2009. It is currently India’s biggest microfinance organization.
7. IDBI Bank Ltd
IDBI Bank is engaged in the business of monetary intermediation of commercial banks, saving banks, postal savings banks, and discount houses.
The bank currently runs 2,000 branches across India, most of which are found in semi-urban areas. Additionally, it runs 3,700 ATMs throughout India.
At the moment, the loan book is made up of 60% retail loans and 40% business loans. Retail (personal) loans make up 31% of the loan book, followed by industrial loans at 39%, the services sector at 17%, agriculture at 11%, and others at 2%.
The bank gained global attention after it experienced significant losses over the previous five years as a result of its Corporate NPAs (non-performing assets). Due to corporate NPAs, it generated losses of 29,000 crores in FY19 and 11,500 crores in FY20.
In the previous seven years, it has written off bad loans totaling 46,000 crores with a mere 7% recovery rate.
Fun fact- Over the past three years, the Life Insurance Corporation of India has obtained a 51% stake in the bank.
8. AU Small Finance Bank Ltd
AU Small Finance Bank Limited is engaged in providing a range of banking and financial services including retail banking, wholesale banking, treasury operations, and other services.
AUBANK offers a variety of tech-enabled products and services to its 20 lakh consumers. To boost its value proposition, the company hired more than 5,300 bankers in FY21 from a variety of sectors, including branch banking, technology, risk, and audit.
Through qualified institutional placements (QIPs), the company raised Rs. 625.5 crores from investors in FY21. The QIP enables a firm with an Indian listing to raise money from domestic markets without having to file any pre-issue documents with market regulators.
The company has 343 ATMs, 15 business correspondents, 177 business correspondent banking outlets, and 552 bank branches. In FY21, it expanded into 37 new locations, including ones in Agra, Bhubaneshwar, Bengaluru, Hyderabad, Jammu, Kanpur, Kolkata, and Lucknow.
To raise brand exposure and enhance consumer interaction, the bank also collaborated with well-known companies including Swiggy, Amazon, Grofers, Lenskart.com, Coolwinks, Apollo Pharmacy, 1mg, Domino’s, ganna, Lakme Salon, Make my Trip, Kalyan Jewelers, Medlife, Zee5, Bigbasket, Flipkart, and Myntra.
The bank launched its services across several payment platforms, including UPI, UPI QR, BBPS, AePS, FASTag, ASBA, etc. Additionally, it automates different facets of managing the customer life cycle with tools like WhatsApp Banking, chatbots, video banking, virtual RMs, etc.
They have also launched Video Banking with a vision of offering almost everything that a customer can typically do in a branch. To achieve its goal of becoming an all-India bank, AU Small Finance Bank is concentrating on expanding its presence in major urban areas, especially capital cities, which historically have contributed to higher Liability bases for banks.
The bank is dedicated to supporting innovative technologies and creating a strong data and analytics program.
Fun fact- L.N. Finco Gems Private Limited, a private limited company, was the original name under which AU Small Finance Bank Limited was established on January 10, 1996.
9. Yes Bank Ltd
Yes Bank offers a variety of banking services, such as business and transaction banking, branch banking, corporate and institutional banking, financial markets, investment banking, and wealth management.
Currently, the bank has a nationwide network of 1,098 branches, 56 business correspondence banking locations, and 1,400 ATMs.
Metro cities are home to 36% of all its branches. Corporate loans currently make up 52% of the loan book, followed by retail loans (28%), small and medium-sized businesses (12%), and medium-sized businesses (9%).
In the past two years, however, the bank has witnessed a rising proportion of retail activity in the loan book. They have secured business loans (22%), vehicle loans (17%), credit-based loans (15%), personal loans (11%), loans for construction equipment (8%), and house loans (8%) in addition to others (15%) in their retail book breakdown.
The bank partners with several organizations, including the government, businesses, financial institutions, and fintech. It has agreements with Groww, IDEMIA, Zerodha, Godrej, FICCI, TOKA, Sterling, Cars 24, Oxigen, Zeta, Muthoot Finance, and other companies.
The bank continuously tries to strengthen its position despite being notorious for its gross non-performing assets. Readers may please note that the NPAs of the bank’s corporate advances are the main cause of its high GNPA ratio.
Unfortunately, the bank has several high-value NPA accounts, including those belonging to the Anil Ambani Group, Subhash Chandra’s Essel Group, DHFL, Il&FS, Jet Airways, Cox & Kings, Go Travels, McLeod Russel, Omkar Realtors, Radius Developers, and CG Power.
The total amount of the loans taken out by these groups that defaulted is 35,000 crores. The well-known bank crisis was mostly brought on by these corporate failures. Numerous commercial and public entities injected equity into the YES Bank on March 14, 2020, to prevent the bank from collapsing.
They were allotted equity shares of FV Rs. 2 each for Rs. 10 per share. Each investor’s allocation of 75% of the equity shares was locked in for three years. As the lockup period comes to an end, March 2023 would be an excellent month to keep a careful eye on the Yes Bank shares.
These were some institutions that were allotted the following amount of shares:-
- State Bank of India – 605 crore
- HDFC – 100 crore
- ICICI Bank – 100 crore
- Axis Bank – 60 crore
- Kotak Mahindra Bank – 50 crore
- Federal Bank – 30 crore
- Bandhan Bank – 30 crore
- IDFC First Bank – 25 crore
Additionally, as per the reconstruction scheme, SBI’s ownership of the bank shall not drop below 26% for a period of three years beginning in March 2020. In July 2020, the bank also approved the raising of capital through a follow-on public offering (FPO) and issued 1,250 crore shares for Rs. 12 per share.
Its equity capital was raised from ~2,500 crores to ~5,000 crores post the FPO.
Many devoted Yes Bank investors criticized this decision because the price indicated to ordinary investors was significantly greater than the price offered to institutions.
Fun Fact- The stock of Yes Bank reached its all-time high of Rs. 393.20 on August 24th, 2018, however it currently trades between Rs. 10 and Rs. 16 Rupees.
10. IDFC First Bank Ltd
IDFC Bank was created by the demerger of the infrastructure lending business of IDFC Ltd., a leading infrastructure financing company primarily on project finance and mobilization of capital for private sector infrastructure development.
IDFC Ltd. was granted in-principle approval by the Reserve Bank of India (RBI) to set up a new bank in 2014. The Bank was looking for a merger with a retail finance company with sufficient scale, profitability, and specialized capabilities as part of its effort to diversify its loan book away from infrastructure. Presently, this private sector bank operates a network of 603 branches and 703 ATMs across India.
IDFC FIRST Bank was founded as a new entity through the merger of the two institutions on December 18, 2018. In January 2019, the combined entity listed its new shares on the NSE and BSE. With a new board of directors, new management, renewed focus, and vigor, and a new brand logo, and strategy, IDFC FIRST Bank made a fresh start.
The Bank is dedicated to creating a customer-first culture that directs the design of its products and services as well as how quickly it responds to client requirements.
Fun fact- A Rs. 3 billion (US$38 million) loan to Flipkart is one of its largest investments in e-commerce.
On November 8, 2017, IDFC Bank and MobiKwik agreed on a strategic agreement to introduce a jointly branded virtual Visa prepaid card for MobiKwik users.
Conclusion
By now, you must have realized that with underlying complexities, fundamental analysis of banking stocks is intricate and calls for unique expertise as well as a lot of time. For instance, because banks borrow capital to make loans to consumers, they typically have a greater debt-to-equity ratio.
As a result, rather than looking at this particular ratio alone, analysts typically compare it to its competitors. If 10% of their loans defaulted instead of the 5% they anticipated, it would be bad for shareholders.
This could result in a significant loss of book value and may lead to significant losses for the bank and the shareholders. You can research these companies independently to make wise judgments while keeping the advantages and downsides in mind.
Another time-saving strategy to capitalize on this sector’s rise involves purchasing NIFTY Bees or contracting out the difficult analysis to an expert fund manager using a sector-based mutual fund to reduce risks.
Our ranking of the top 10 Indian private sector banks comes to a close now.
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