Kotak Mahindra Bank Ltd. topped the inaugural S&P Global Market Intelligence ranking of the 32 publicly traded Indian banks based on financial performance.
CSB Bank Ltd. and Tamilnad Mercantile Bank Ltd. followed in second and third positions, respectively. The rankings analyze the performance of Indian lenders based on seven weighted financial metrics, including return on average equity, net interest margin, cost-to-income ratio and nonperforming loan ratio, as of the year ended March 31. Nine of the top 10 lenders in the ranking were private sector banks, with seventh-placed Bank of Maharashtra the public sector exception.
HDFC Bank Ltd.
In this analysis, companies were ranked according to seven weighted financial metrics: Return on average equity (16%), net interest margin (16%), noninterest income/average assets (16%), cost-to-income ratio (16%), nonperforming loan ratio (16%), net stable funding ratio (10%) and common equity Tier 1 ratio (10%). The mean for each metric was identified across the sample, and standard deviations from these means were calculated for each metric for each institution and aggregated to determine a relative performance score. Scores for each metric were capped to help normalize the data.
A similar ranking of banks in mainland China can be found here, Japan here and Europe here.
HDFC Bank Ltd., India's largest private sector bank by assets, was No. 8 in the ranking, while ICICI Bank Ltd. was No. 6. The country's biggest bank by assets, government-run State Bank of India, was No. 24 in the rankings, trailing Bank of Maharashtra and five other public sector peers. Among state-owned lenders, Bengaluru-headquartered Canara Bank, came in at No. 13, and Indian Overseas Bank at No. 16.
Indian banks have posted profit growth in recent years thanks to the country's strong economic performance, solid credit growth and higher interest rates. The aggregate assets of Indian lenders rose 50.5% to $1.510 trillion in 2023. India's economy is projected to grow by an average 6.7% per fiscal year from 2024 through 2026, the World Bank said in a June 11 report.
This rapid economic growth, along with favorable government reforms, means state-owned banks are set to narrow their performance gap versus private sector lenders. The median net interest margin (NIM) among public sector banks improved to 3.01% in the fiscal year ended March 31 from 2.90% in the previous year, Market Intelligence data shows. Comparatively, the median NIM at private sector banks fell to 3.99% from 4.09% in the prior-year period.
Banks' overall advances rose during the financial year ended March 31, and higher profits boosted return on average equity (ROAE), according to Market Intelligence data. Axis Bank Ltd., the fifth-highest bank in the ranking, posted the largest increase in ROAE, up 997 basis points to 18.50%.
Higher NIMs and lower credit costs helped guide Indian banks to year-over-year growth in net income in the fourth quarter of fiscal 2023 and record-high profits. Meanwhile, the cumulative nonperforming loans of the three largest private banks and three public banks fell to 2.483 trillion Indian rupees in the 12 months to March 31, down 11% from 2.791 trillion rupees a year earlier.
Indian banks' aggregate cost-to-income ratio, which measures a bank's operating expenses as a percentage of its income, jumped to 57.08% for the year ended March 31, from 48.65% in the previous year.
Interest rates are widely believed to have peaked in the country and the Reserve Bank of India is expected to cut rates later this year, which could pressure Indian banks' margins. An expected decline in margins and higher costs, due to heavy focus on expansion, are dragging on banks' efficiency. The banks' margins are likely to be squeezed by slowing credit growth, liquidity pressures and potential rate cuts, particularly for private sector banks.
As of Sept. 4, US$1 was equivalent to 83.98 Indian rupees.