India's banks, particularly state-owned lenders, saw a decline in market capitalization during the July–September period, reversing some gains from earlier this year, in contrast to growth in the broader equity market.
All state-owned banks posted quarter-over-quarter declines in market capitalization, according to S&P Global Market Intelligence data. State Bank of India's market capitalization declined by 7.2% to 7.032 trillion rupees, while Bank of Baroda Ltd. fell by 10% and Punjab National Bank decreased by 9.2%.
Private-sector banks had mixed results. Market leader HDFC Bank Ltd.'s market cap grew 3.2% to 13.217 trillion rupees, while ICICI Bank Ltd. remained the second-biggest Indian lender by market capitalization after seeing a 6.3% growth. Kotak Mahindra Bank Ltd. posted a 2.7% growth. Axis Bank Ltd., India's fourth-largest lender, posted a 2.5% decline, while IndusInd Bank Ltd. was down 1.1%.
The top 20 banks' combined market capitalization fell 0.9% in the quarter, compared with a 9.8% increase in the three months to June 30, according to Market Intelligence data. Only five of these banks reported gains.
The Nifty Bank Index, which tracks 12 of the most liquid large-cap banking stocks, rose by 0.8% in the quarter, while the benchmark Nifty 50 index increased by 6.9%, bringing year-to-date gains to 13.85%.
Indian lenders' net interest margins are under pressure as banks compete for deposits in an economy where the pace of lending has outpaced deposit growth so far in 2024. Lending growth eased to 14.4% year over year in August from 16.3% in the year that ended March 31. Deposit growth accelerated to 12.3% in August from 11.0% in July, according to central bank data released Oct. 21.
Central bank holds rate
The Reserve Bank of India kept its benchmark interest rates unchanged on Oct. 9, citing a sustained momentum in the domestic growth rate and a resilient global economy. The Sept. 18 pivot by the US Federal Reserve is expected to trigger a global rate-cutting cycle, but India's central bank may keep rates higher for longer.
The central bank expects gross domestic product to grow 7.2% in the fiscal year ending March 31, 2025, compared with 7.6% in the previous year.
Market Intelligence economists expect India's GDP to grow 6.8% in the fiscal year as "economic momentum has started to slow." Still, private-sector activity is improving with easing inflation, favorable monsoon rains and higher government social spending that is boosting household demand, Market Intelligence said in an Oct. 22 report. "Healthy corporate balance sheets are also supporting the recovery in private investment," it added.