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Nifty bank at record high with 12% gains; SBI, ICICI Bank, Kotak make up 60% of index value

As investors continued to purchase bank stocks in the wake of better-than-expected profits for the March quarter, the Nifty Bank index reached a new high on May 29 and broke the previous record for highest point. In the most recent four weeks, the index has seen a rise of nearly 12 percent.

Over the last two months, the growth in the market capitalization of the Nifty Bank was driven mostly by the performance of three firms: State Bank of India, ICICI Bank Ltd., and Kotak Mahindra Bank. Together, these three stocks contributed more than sixty percent of the total gain.

During this time span, both the Sensex and the Nifty saw gains of more than 10 percent. The upswing that began on March 28 was mostly caused by purchases by foreign investors in response to improvements in macroeconomic conditions. During this time period, the combined market capitalization of the top three banking companies, which were State Bank of India, ICICI Bank Ltd., and Kotak Mahindra Bank, climbed by Rs. 1.8 lakh crore. This represented approximately 60 percent of the gains that were seen in the market capitalization of the Nifty Bank.

The following three bank stocks, Axis Bank, HDFC Bank, and Indusind Bank, contributed a combined total of more than 22 percent to the upward movement of the market.

Since March 28th, State Bank of India (SBI) shares have increased by 16%, ICICI Bank shares have increased by 12%, and Kotak Mahindra Bank shares have increased by 15%. Axis Bank increased their value by 12 percent, HDFC Bank increased their value by 3.3 percent, and Indusind Bank increased their value by 24 percent.

SBI has reported a significant rise in net profit for the March quarter, which was driven by strong demand for loans and a decrease in provisions, which is reflective of improving asset quality during the period. The bank’s net profit reached a staggering amount of Rs 16,695 crore, representing an amazing increase of 83 percent. SBI reached a significant milestone when it became the first bank in India to attain an annual profit level of Rs 50,000 crore during the fiscal year 2023. This accomplishment made SBI the first bank in the world to reach such a level.

The March quarter results showed that ICICI Bank’s robust profit trend persisted. Despite the new precautions, the institution reported good growth in both their net interest revenue and their profits. It also saw an improvement in its percentage of non-performing assets. According to research conducted by Nuvama Research, shares of Kotak Mahindra Bank increased as investors anticipated the company’s weightage in the MSCI index might more than double to 2.68 percent from 1.38 percent, which would result in potential inflows of $800 million. The reorganisation is slated to take place on May 31.

Additionally, a 13% increase was seen in the Nifty PSU Bank index, while a 12% increase was seen in the Bankex index. The majority of the banks’ results came in far higher than projected, which led to the market’s rise.

All listed banks have generated attractive profits, with the exception of Yes Bank, which reported a decrease in net profit of 45 percent year over year; Bandhan Bank, which reported a decrease in net profit of 57 percent year over year; and Axis Bank, which reported a loss for the quarter. When compared to the previous year’s results, the net profit of four public sector banks increased by more than one hundred percent.

Bank of Baroda, Bank of India, Bank of Maharashtra, and Punjab National Bank are some examples of these financial institutions. It was stated that the net profits of Canara Bank, the Central Bank of India, the State Bank of India, UCO Bank, and Union Bank all increased by more than 80 percent year-on-year.

In the realm of private banking, the situation is not dissimilar at all. For the March quarter, IDFC First Bank, Jammu and Kashmir Bank, and Karnataka Bank reported increases in net profit that ranged from 134 percent to 324 percent to 171 percent, respectively. The net profits of several of the nation’s smaller banks, including Dhanlaxmi Bank, Karur Vysya Bank, and Federal Bank, increased by more than 60 percent.

The significant gain in net interest income, the rise in other revenue, which includes income from the treasury, and the reduction in provisions for bad assets are the primary contributors to the record earnings.

Every other bank reported a reduction in gross non-performing assets, with the exception of HDFC Bank, Indusind Bank, Karnataka Bank, South India Bank, and Federal Bank, all of which recorded an increase. The gross non-performing assets of the private bank are slightly more than 1.27 trillion rupees, which is a decrease of 31% from the previous year. In the case of PSU banks, it was over 5.55 trillion rupees, which is 24 percent less than the previous year.

A recent statement made by S&P Global Ratings said that the profitability of the Indian banking industry is anticipated to stabilise at a healthy level, while there will be sustained improvement in asset quality. Additionally, the statement indicated that there would be continued growth in asset quality.

“Indian banks’ earnings will likely remain healthy. The sector has improved substantially in the past seven years, from a period when many public-sector lenders were grappling with bad loans,” S&P Global Ratings said in its note.

According to S&P Global Ratings, the banking industry in India is now undergoing a solid rebound, and a number of financial institutions have lately reported their greatest earnings in the last ten years. The rating agency believes that the profitability of the industry will level out at a healthy level and that banks will continue to see improvements in the quality of their assets.

Higher net interest margins and lower loan costs are to thank for the recent improvement in the profitability of the banking industry in India.

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