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Shares of public sector banks delivered a strong performance in 2024, extending their winning streak to the fourth consecutive year, while private sector banks remained muted during this period, ending the year with mild losses and halting a three-year winning run. The Nifty PSU Bank index concluded the year with a gain of 14.48%.
However, the returns could have been even higher if the stocks had not witnessed a dip during the second half of the year due to concerns over a slowdown in government capex spending. In the first half of the year, the index gained 29%, but it tumbled 11.20% in the second half.
Among the top performers, State Bank of India (SBI) led with a gain of 23%, followed by Indian Bank with a return of 24%. Other notable performers, including Indian Overseas Bank, Bank of Maharashtra, Canara Bank, Punjab & Sind Bank, and UCO Bank ended the calendar year with gains ranging between 10% and 20%. In contrast, the Nifty Private Bank index concluded the year with a slight drop of 0.
38%. Among the worst performers were RBL Bank, IndusInd Bank, Bandhan Bank, and IDFC First Bank, which lost up to 40% of their value in 2024. However, there were some standouts in the pack.
ICICI Bank emerged as the top gainer, rallying 28.60%, followed by Federal Bank and City Union Bank, which gained 28.60% and 16%, respectively.
Beyond stock returns, public sector banks also outperformed private sector banks in the September quarter earnings. The combined net profit of 12 Indian PSBs rose by 35.39% to ₹ 45,550 crore in Q2 FY25, driven by a drop in provisions and a notable improvement in asset quality.
Additionally, a surge in non-interest income and Treasury profits helped state-run lenders deliver strong results in Q2. In contrast, a rise in bad loans impacted the profitability of private sector banks and also prompted them to lift their provision limits. These banks reported an 8.
21 per cent growth in combined net profit during Q2. Lenders with a higher share of unsecured loans, such as IndusInd Bank, posted weaker numbers for the September quarter. In addition, non-banking financial companies (NBFCs), which have been the biggest customers for private sector banks, faced slowed lending due to RBI restrictions, such as rising risk weights on bank credit to NBFCs.
Public sector banks have reduced their exposure to NBFCs in recent years due to asset quality concerns and regulatory scrutiny. The RBI's restrictions on unsecured and NBFC lending have helped narrow the gap in loan-to-deposit growth, slow unsecured loans, and even temper GDP growth. Will credit growth rebound this year? The loan growth of Indian banks moderated for a fifth straight month in November to 11.
8% YoY as compared to 16.5% during the same period last year, excluding the impact of HDFC Bank's merger with its parent Housing Development Finance Corp, according to RBI data released late on Tuesday. Including the impact of the merger, banks' loans grew 10.
6% in November, compared with nearly 21% in the year-ago period. Going ahead, analysts expect the loan growth to moderate further in the ongoing fiscal year. Credit rating agency ICRA has recently lowered its banking credit growth estimate for FY2025 to 10.
5-11.0% , down from its previous forecast of 11.6-12.
5%. For FY2026, ICRA anticipates a further slowdown in credit growth, estimating a range of 9.7-10.
3%, influenced by the high credit-deposit (CD) ratio and upcoming changes in the liquidity coverage ratio (LCR) framework. Despite challenges in raising deposits, the capital ratios of most banks remain robust, and no significant capital requirements are expected for FY2026. However, challenges in deposit mobilisation and an increase in bond issuances are likely to persist.
ICRA estimates bond issuances will reach ₹ 1.3 trillion for FY2025. On the asset quality front, ICRA noted that overall net additions to non-performing assets (NPAs) remain low, contributing to steady improvement in asset quality.
However, the retail sector is experiencing increasing stress, and fresh slippages are expected to rise in FY2025 and FY2026. The gross NPA ratio is likely to edge upward in FY2026 but is still projected to remain manageable. Global brokerage firm Jefferies noted, "Loan growth is expected to slow to 11-13% in 2025, leading to some EPS cuts.
Rates may fall by 50 basis points, and we may see easier or stable norms. The asset quality cycle may be shallower and ease for big banks in FY26. Valuations are attractive as the EPS gap versus the market is narrower.
" Disclaimer : The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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