After a few years of trouble and strife, the Indian banking sector is back on track. The country’s banks have cleaned up their balance sheets and are expanding them again, against a stable economic backdrop. Nine of the 10 biggest Indian lenders by Tier 1 capital increased their core capital in financial year 2022-23; only Axis Bank recorded a drop, albeit by just 1.9%.
There is little movement among the top 10 from the previous ranking. Government-owned State Bank of India (SBI) remains the largest lender, with Tier 1 of $44.0bn, a 9.5% year-on-year increase. It is also the largest by assets, with more than double the assets ($724.2bn) of the next largest lender, HDFC Bank, a private sector bank.
Almost all managed to increase pre-tax profits, except Axis Bank and Punjab National Bank, which experienced declines of 9.2% and 1.8%, respectively. Bank of Baroda saw the biggest jump in profits, of 88.0%.
But its Kotak Mahindra Bank (KMB), in sixth place by Tier 1 capital, that outperforms its peers when run through The Banker’s best-performing methodology. This looks at eight performance indicators: growth, profitability, operational efficiency, asset quality, return on risk, liquidity, soundness and leverage.
The private sector bank placed first in profitability, which looks at return on assets, return on equity, profit margin, asset utilisation (and annual basis points [bps] changes); soundness, which assesses annual bps change in capital assets ratio; and leverage, which measures annual bps change in the total liabilities to total assets ratio. KMB increased its Tier 1 capital base by 5.8%, to $12.4bn, and its pre-tax profits by 13.3%, to $2.4bn.
The second-best performer is ICICI Bank, which is the country’s third largest lender by Tier 1 capital. Another private sector bank, it has topped the performance table in the return on risk category, which looks at the annual bps change in its return on risk-weighted assets ratio. It also performed well in profitability, operational efficiency (change in cost-to-income ratio) and leverage.
IndusInd Bank, also a private sector lender, comes in third in the overall performance table, with its best positioning in the liquidity indicator. This looks at year-on-year change in a bank’s loans-to-assets ratio and loans-to-deposits ratio. It managed to grow its pre-tax profits by 42.4%, to $1.2bn.
Read more of our coverage of India
Clearly, the private sector banks are outperforming the large state-owned institutions. SBI, the biggest public sector institution, finished sixth in the overall performance table, with its best showing in liquidity and asset quality, which looks at annual change in an institution’s allowance for loan losses to gross total loans, non-performing loans and impairment charges to total operating income ratios. It places last of the 10 in operational efficiency.
Another public sector bank, Bank of Baroda, which is the country’s fifth largest bank by Tier 1, also places fifth in the best-performing table. While it performed well in the growth, which measures annual percentage growth in assets, loans, deposits and operating income, and asset quality, it is let down by its scores in liquidity, soundness and leverage.
