BANKING ON BANKS

Banks are currently in enviable position with strong capital, liquidity, and improved asset quality driving profitability, helping them to outperform market

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During the first quarter of 2023, investors around the world exhibited contrasting attitudes towards banking stocks. While those in the US and Europe remained cautious, investors in India continued to show great interest and enthusiasm for the banking sector. Despite the challenges faced by banks in developed economies, the Indian banking system stood out due to its robust balance sheet, diverse portfolio, and notably lower bad loans. The sector’s sound health was reflected in strong capital and liquidity positions, improved asset quality, better provisioning coverage, and enhanced profitability.

This optimism towards Indian banks was wellfounded, as evidenced by the outperformance of the Bank Nifty index compared to the Nifty 50. Over the past one year, both Bank Nifty and Nifty 50 have delivered impressive returns, showcasing their resilience and ability to capitalize on market opportunities. Bank Nifty, which tracks the performance of the banking sector, recorded a commendable growth of 20 per cent, while Nifty 50, representing the broader market, achieved a solid 13 per cent return.

The positive momentum was particularly noticeable among public sector banks, which experienced a significant reduction in bad loans and provisions, leading to substantial profits. Many public sector banks achieved returns in the 20s, with some even crossing the 30 percent mark.

While private sector banks also performed well, they couldn’t match the remarkable performance of their public sector counterparts.

Improving Financial Performance