In the first quarter of FY 2024, the Indian banking industry has shown strong growth. In this period, total deposits reached Rs. 183.5 lakh crore (a 14% increase from last year), showing growing trust of customers in banks. Also, corporate advances (loans to businesses) grew by 15%, while retail advances (loans to individuals) surged by 20%. This indicates strong demand for both personal and business loans.

However, the CASA (Current Account Savings Account) ratio dropped by 256 basis points. This implies banks are unable to attract low-cost deposits, which can negatively impact their margins in the coming period.

As an investor, if you are looking to invest in banking stocks, you must evaluate the overall performance of the banking sector. To assist you, we have provided a complete overview of the banking industry in this article, including its profitability and key performance indicators. Also, we have covered some of the top banking stocks based on market capitalisation. Read till the end to make a thorough analysis.

• In Q1 FY24, the performance of the banking sector improved, as Indian banks saw a 69% YoY profit growth.
• Public sector banks showed strong recovery and contributed around 47% to overall profits.
• Total income for banks grew 38%. This was primarily due to a 27% increase in net interest income and a 60% rise in non-interest income.

If we talk about profitability, in Q1 FY24, the total income for banks grew by 38% and reached an impressive Rs. 4.9 lakh crore. The rise in income shows that banks are generating more money overall, which is a good sign of financial health.

Furthermore, the “net interest income” of banks increased by 27% during this period. For the unaware, it is the difference between what banks earn from loans and what they pay on deposits. Also, “non-interest income”, like fees from services and returns on investments, grew by 60%. This growth in both areas shows that banks are becoming more profitable and diversified in their earnings.

To gain more clarity on the performance of the banking industry and become aware of emerging trends, check out certain key performance indicators:

1. Profit growth in the banking sector

In Q1 FY2024, banks earned Rs. 0.74 lakh crore. This figure marks a 69% increase compared to last year. Public Sector Banks (PSBs) saw their profits double from Rs. 0.15 to 0.34 lakh crore. As a result, PSBs now contribute 47% to overall banking profits, marking an increase of 35%. This growth also shows that PSBs are catching up with private banks.

2. Return on Assets (ROA) improvement

Please note that the banking sector’s ROA is a key measure of profitability. Notably, it has improved from 0.9% to 1.4% over the past year. This shows that banks earned more profit for every rupee of their assets. Primarily, this improvement came from higher income from interest, fees, gains from investments, and fewer loans going bad (as they required lower provisioning).

3. Narrowed gap between deposit and repo rate

In 2024, the difference between deposit rates (what banks pay customers) and the repo rate (what banks pay the RBI) has narrowed. Banks are now paying higher interest rates to customers for their deposits. At the same time, the cost for banks to borrow money from the Reserve Bank of India (RBI) has also increased due to a higher repo rate.

Now, to maintain a healthy flow of deposits, banks are raising deposit rates so that it becomes more attractive for people to save money in banks.

4. Improved capitalisation levels

In Q1 FY2024, the capitalisation level of banks remained at comfortable levels. Most banks are well-capitalised and have enough money reserved to meet future challenges. Also, this gives them more financial stability and the ability to lend additional money without taking too much risk. Overall, this situation will help banks to maintain their long-term growth.

5. Valuation increased of PSBs

Interestingly, public sector banks (PSBs) have seen their stock prices improve between April 2021 and July 2023. During this period, they have outperformed private banks. However, private banks still hold higher valuations because investors believe they offer better growth and profitability in the long run.

To give you a fair idea of the performance of the banking industry, we have also compiled the standalone performances (as of Q1 FY24) of top Indian banks like SBI, HDFC Bank, ICICI Bank, Kotak Mahindra, and more. Check the list below:

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