India’s banking sector, which experienced some tough times even prior to the Covid-19 pandemic, has managed to come through the worst of it, with its banks cleaning up their balance sheets and growing Tier 1 capital and assets over the past financial year. The Banker takes a look at the country’s largest public and private sector lenders, as well as a few relative newcomers.
State Bank of India
Government-owned State Bank of India (SBI) is the largest Indian bank with Tier 1 capital of $40.19bn and assets worth $707.15bn. According to The Banker’s Top 1000 World Banks ranking this year, SBI is the 58th largest bank by Tier 1 capital. With more than 467 million customers and 22,266 branches, SBI accounts for around a quarter of the Indian banking sector’s assets. In the financial year 2021/22, the lender reported a 51.3% year-on-year growth in pre-tax profits, of $6.67bn, after a 13% dip the previous financial year. SBI’s asset quality also improved in this period, with the gross non-performing assets (NPA) ratio maintaining the downward trend of the past five years. The gross NPA ratio, which indicates the proportion of loans that have gone bad, reduced from 4.95% in March 2021 to 3.92% in March 2022.
“The capital position and NPA levels have improved for the banking system as a whole,” says Dinesh Khara, chairman of SBI. During the financial year 2021/22, the bank’s loans grew by 11% to Rs28.18tn ($361.45bn), compared to a growth of 4.8% in the financial year 2020/21.
Mr Khara expects SBI to maintain the same credit growth in the financial year 2022/23. “Our retail loan book has been growing at a compound annual growth rate basis at about 15%-plus for the last three years, and in the last quarter we have started seeing a decent growth even in the corporate book. I think this is quite encouraging,” he says.
In SBI’s financial year 2021/22 annual report, Mr Khara stated that “the future of banking is in the realm of technology”. Yono, SBI’s flagship digital platform that provides digital services to retail customers, farmers, corporate clients and to customers of select overseas SBI offices, has more than 48 million registered users and sees over 16.5 million logins in per day.
“Yono is an important delivery platform for us and we believe that it is core to our ambition of digitisation which happens to be our prime focus in the coming year,” says Mr Khara. In the financial year 2021/22, 36% of SBI’s retail accounts and 63% of its savings bank accounts were opened with the help of Yono. The bank is now working to upgrade the platform, and is also increasing its focus on the digital and analytics space. “We are leveraging analytics not only for sourcing business but also for risk management and operational risk assessment,” explains Mr Khara.
HDFC Bank
The largest private sector bank in the country, HDFC Bank has consistently outperformed its peers. In the financial year 2021/22, it declared the highest profits in the Indian banking sector of $6.71bn and the lowest gross NPA levels of 1.33%.
With Tier 1 capital of $33.34bn and assets worth $280.03bn, HDFC Bank comes 65th in The Banker’s Top 1000 World Banks ranking this year. It has more than 70 million customers and 6300 bank branches. While the bank has maintained a strong reputation for governance and execution, it has stumbled on the tech front in recent years.
The banking regulator has recently lifted restrictions placed on the bank’s new digital product launches and new credit cards, after the HDFC faced several digital outages in 2019/20. The curbs were in place for around 15 months. Kaizad Bharucha, executive director at HDFC Bank, says that the bank is working at multiple levels on its technology infrastructure and digital strategy. “We are moving to a cloud-driven infrastructure and are fortifying our technology systems both on the hardware and software side,” he explains.
On innovative digital products, he gives the example of an online express car loan solution launched by the bank where the customer can get approvals quickly on their mobile phones.
In a major development, HDFC Bank recently announced that its promoter, the country’s largest home finance company, Housing Development Finance Company (HDFC Ltd) is merging with the bank. The combined entity is estimated to have an asset size of around $350bn.
While HDFC Bank will remain the second-largest bank in the country, the merger will bring it closer to SBI in terms of asset size and expand the gap between HDFC Bank and its nearest rival, ICICI Bank. Mr Bharucha explains that tightening regulatory requirements for non-bank financial institutions in recent years was a key driver in the decision for the merger. International rating agency Fitch Ratings believes both entities stand to gain from the deal, estimating that the combined entity will account for nearly 14% of the banking industry’s loans and 9% of its deposits, a 3% and 1% jump, respectively, in both segments.
Mr Bharucha says the benefits are manifold. “We will be able to leverage the bank’s vast network to distribute the home loan product. The home loan is a very profitable and sticky product, with low delinquency and long duration,” he says. “The bank will also get a tremendous opportunity to cross-sell our entire suite of products to HDFC Ltd’s quality clientele … around 70% of HDFC Ltd customers do not bank with HDFC Bank.”
The merger, which is pending regulatory approval, will take around 18-24 months to complete.
ICICI Bank
The second-largest private sector Indian bank, ICICI Bank, moved up seven places this year to 89th spot in The Banker’s Top 1000 World Banks ranking. ICICI Bank has assets worth $231.19bn, Tier 1 capital of $22.78bn, and a network of 5418 branches and more than 13,500 ATMs. The bank reported strong growth in the financial year 2021/22 with pre-tax profits of $4.61bn, a 30.4% increase over the previous financial year. Asset quality improved as well, with the gross NPA ratio dropping from 4.96% at the end of March 2021 to 3.65% at the end of March 2022. Total advances at the bank increased by 17% year-on-year to $113.3bn, while total deposits increased 14% year-on-year to $140.5bn, as of March 31, 2022.
One of the forerunners of tech in the Indian banking sector, ICICI Bank has launched a variety of innovative digital initiatives for retail, as well as corporate and small and medium-sized enterprise (SME) customers. Digital channels, such as internet and mobile banking, accounted for more than 90% of the savings account transactions in the financial year 2022, while the value of mobile banking transactions increased by 30% year-on-year to $63bn in the April-ending quarter of financial year 2022.
In December 2020, ICICI Bank’s initiative to offer payment and banking services to customers of any bank through its mobile banking app was well received. There have been 6.3 million activations in the 15 months of offering the service. According to the bank, the value of transactions by non-ICICI Bank account holders in the fourth quarter of financial year 2021/22 grew 4.9 times over the value of transactions in the third quarter.
Axis Bank
The third-largest private bank in the country, Axis Bank has assets worth $157.70bn and Tier 1 capital of $16.20bn. The bank has a footprint of 4758 branches and 10,990 ATMs across the country. In the financial year 2021/22, Axis Bank’s pre-tax profits grew to $2.50bn, recording 88.23% year-on-year growth — the highest among its private-banking peers.
The bank’s asset quality improved too, with the gross NPA ratio reducing to 2.98% from 3.94% in the previous financial year. The bank is investing heavily in the retail digital banking space. In the financial year 2021/22, Axis Bank’s mobile banking transaction volumes grew by 97%, while its retail digital payments value nearly doubled. In the same period, nearly 70% of new savings accounts were opened through tab banking, and 68% of retail term deposits, by volume, were opened digitally.
“In order to succeed in the banking landscape of the future, it will be essential for traditional banks to be mobile-centric, be able to innovate rapidly and leverage data through artificial intelligence/machine learning,” says Amitabh Chaudhry, managing director and chief executive officer at Axis Bank. “Above all, banks will need to provide outstanding customer service, centred around transparency and ease of use, powered by cutting edge technology and analytics.”
While Axis Bank is continuing its focus on growing organically, it has also announced ambitious plans to acquire Citibank’s Indian retail business for around $1.6bn. “[This] acquisition will accelerate the premiumisation of Axis Bank’s franchise,” states Mr Chaudhry. While Axis will get a deposit base of around Rs500bn and an asset base of around Rs270bn, and become the third-largest credit card player as well as the third-largest wealth management player in the market, the main assets that Axis will gain are the premium customer base and highly trained employees known for providing very high-quality service.
“Citibank has been in the Indian market for 120 years and the premium customer base they have is evident in the spend per card and in the wealth management franchise they have. It would have taken a long time for Axis to acquire this,” he says.
He acknowledges the challenges involved in the Citibank acquisition, such as attrition of Citi’s customers and employees especially during the 18–24 months it will take for Axis to complete the acquisition process, but says that all this has been factored in the deal cost and execution plan. The Citibank deal is a “wonderful opportunity and a once in a lifetime deal“, he says.
Bank of Baroda
As the third-largest public sector bank in India, Bank of Baroda has assets worth $176.78bn and Tier 1 capital of $12.03bn. It has a network of more than 8200 branches and more than 10,000 ATMs across the country. In the financial year 2021/22, the bank reported pre-tax profits of $1.32bn — a healthy 48.4% year-on-year growth. It also experienced improvements in asset quality with its gross NPA ratio reducing from 8.87% last year to 6.61% in the financial year 2021/22.
Bank of Baroda has been focusing very strongly on its digital banking initiatives. In September 2021, the bank launched a digital banking platform named ‘bob World’, aimed at providing all banking services under one roof. Sanjiv Chadha, managing director and chief executive officer of Bank of Baroda, says that bob World is a financial “super app” that enables all banking activities, as well as investment and shopping, in one place.
Active customers transacting through the platform grew to 20 million in one year, with the bank expecting this to increase to 30 million in the next year.
“Once the number of customers using bob World reaches 30 million, then it shows that around 50% of our non-financial inclusion customer base uses mobile banking as the primary interface for the bank,” Mr Chadha explains. “This will give us tremendous opportunity in terms of making sure that we can actually reach out to our customers and offer them new products. Even today, three times as many customers use bob World compared to those who visit our 8200 branches. So even in terms of how cost structures work, there is actually a huge change.”
Going forward, Mr Chadha says the bank is going to have different versions of the platform targeted at different customer segments, such as wealth management, senior citizens and farmers. “This will be akin to having specialised branch. It is much simpler to do that again in the digital world.” Simultaneously, with customer footfall having reduced in recent years, as well as the reasons for visiting branches having also undergone a change, Bank of Baroda is trying to redesign its bank branches to play a more sales and advisory role.
In her February 2022 budget speech, Indian finance minister Nirmala Sitharaman announced that there would soon be 75 digital banking units across India. Mr Chadha says that Bank of Baroda is launching eight of those units, which will offer assisted services to customers that need help in accessing digital services. Going forward, the bank plans to roll out around 500 such digital banking units. “We believe that now, ultimately, it is mobile banking which is going to be the centre of the bank and branches have to revolve around that,” adds Mr Chadha.
Kotak Mahindra Bank
Established in 2003, nearly a decade after the country’s ‘big three’ private lenders, Kotak Mahindra Bank has established itself as the fourth-largest private sector bank and is growing at a steady clip.
With assets worth $72.09bn and Tier 1 capital of $11.76bn, Kotak Mahindra Bank is ranked 156th in The Banker’s Top 1000 World Banks ranking by Tier 1 capital. In the financial year 2021/22, it reported pre-tax profits of $2.10bn, a 17.4% growth from the previous financial year. At the same time, asset quality at the bank improved, with the gross NPA ratio reducing from 3.22% to 2.37%.
Kotak Mahindra Bank has been regularly investing in creating technology-led capabilities and digital strategies. In the financial year 2021/22, the bank’s focus was on enhancing its technology backbone to improve customer acquisition, engagement and experience. It invested in creating a cloud-based infrastructure, and initiatives such as a quick digital savings account for new and walk-in customers. The bank also invested in creating a digital enterprise portal for business banking and corporate customers. In the fourth quarter of financial year 2021/22, nearly 98% of savings account transaction volumes were in digital or non-branch modes. Dipak Gupta, joint managing director at Kotak Mahindra Bank, says that around 7–8% of total expenses at the bank is towards technology investments. In the fourth quarter of financial year 2021/22, nearly 98% of savings account transaction volumes were in digital or non-branch modes.
Explaining the role of technology at banks, Mr Gupta says: “Traditionally the way we would look at [it] was primarily as a support operation to improve productivity and efficiency … The second phase was where technology assisted in the front end. The third phase for all of us now is where technology itself is the product and what that really means is a significant automation and focus towards DIY – do it yourself. The customer does everything, while we only play an enabling role. This is true not only for retail customers, but SMEs as well.”
Bandhan Bank
Bandhan Bank has successfully transitioned from being a non-governmental organisation, addressing the financial needs of the lower income group, to a microfinance institution and finally a bank. However, its core target audience remains the same: the unbanked and the underbanked customers that have small-ticket credit requirements in rural and semi-urban parts of the country. Chandra Shekhar Ghosh, founder, managing director and CEO of Bandhan Bank, says: “We are focusing on three areas. Customers with small credit requirements, affordable housing finance and small enterprises that need funding to scale up their business.”
The bank has assets worth $18.32bn, while its Tier 1 capital is $2.26bn. The bank reported pre-tax profits for financial year 2021/22 of $17m — a 95.8% drop from the previous financial year. However, the performance in the fourth quarter of the financial year 2021/22 is much better than that of the fourth quarter in the previous financial year. The bank reported a slight dip in its gross NPA ratios, from 6.81% in March 2021 to 6.48% in March 2022.
Tech is as important for Bandhan as its peers, and it has earmarked Rs10bn towards upgrades at the bank. This will include revamping its core banking system and incorporating different kinds of services and applications that focus on customer service, building digital customer journeys and risk management, says Mr Ghosh. The overhaul will start this year and he expects that it will take around 12 months to complete.
Bandhan has more than 5500 banking outlets and plans to increase by another 500 branches this year. Given the profile of Bandhan customers, which are mainly from rural and semi-urban settings, Mr Ghosh says that the branch network is needed to acquire customers. He adds: “But increasingly, our aim is to move them to the online mode of servicing. For this we are focusing on enhancing the financial and digital literacy of our customer.”
DBS Bank
Among foreign banks operating in the country, DBS Bank India has charted a completely unique trajectory. It is operating as a wholly owned, locally incorporated subsidiary; but it has also gone ahead and acquired troubled private sector lender, Lakshmi Vilas Bank (LVB), which has given it a huge footprint in the Indian market. The bank has a network of nearly 600 branches across 19 states in India. In contrast, Citibank, which has operated in India for more than 100 years, only has 45 offices, and HSBC, which has been operating in the country for over 150 years, has only around 50 offices.
Surojit Shome, CEO of DBS Bank India, says: “Our clear mantra for the past 10 years is to deliver the international network to Asian clients and deliver Asia to international clients. For that we have identified six core markets where we have a presence, of which India is one.”
DBS Bank acquired LVB at the end of 2020, and is in the process of integrating both the technology and operations. He says: “We are in the process of integrating LVB branches into the DBS network and are adopting a ‘phygital strategy’ by overlaying the digital strength that we have built over the last five or six years on the strong physical network that we now have.”
According to Mr Shome, DBS’s objective is to be ranked among the top three foreign banks in India in the next five years. Thereafter, it aims to be ranked among the top 10 private sector banks in the country. The Banker’s Top 1000 World Banks ranking shows that DBS is the fifth-largest foreign bank operating in the country, in 29th position among the Indian banks, with Tier 1 capital of $959m and assets worth $10.51bn.
