Top 10 Private Bank Stocks to Watch Out for in India in 2024

After a great run in 2023, the banks have been doing relatively well.

The above-average performance was led by an uptick in demand while maintaining healthy asset quality. The government's efforts at improving the overall economic scenario also helped the growth.

Investor confidence has been on the rise, thanks to improved asset quality attributed to enhanced provisioning, reduced slippages, and increased corporate deleveraging.

And now, with their better asset quality and cleaner balance sheets, private bank stocks are expected to grow even more.

As we look ahead to 2024, we've identified ten private banks worth watching closely.

#1 HDFC Bank

First on our list is the HDFC Bank.

HDFC Bank is the largest private sector bank in India with an extensive network of over 8,000 branches.

The lender has a high market share (15-20%+) in most retail loan categories like unsecured retail, vehicles, and even in mortgages post its impending merger with HDFC Ltd.

Between 2019-2023, the advances have grown around 2x in the last five years at a 5-year compounded annual growth rate (CAGR) of 18.9%.

Despite expanding its advances, the bank has maintained its asset quality thanks to its conservative attitude with its margins and provisioning policies.

This is depicted in the low level of net non-performing assets (NPAs) reported by the bank.

The NPAs of the bank have remained steady in the range of 0.30-0.4% from the financial year 2018, the lowest in the industry.

This is quite admirable as it indicates the company hasn't taken any unnecessary risks to expand its business.

The company's net interest margin (NIM) has also been on rise every year since 2018.

NIM, an important metric in the baking industry is the difference between the interest income earned by a bank from its lending activities and the interest expenses paid on its borrowings and deposits, expressed as a percentage of the average interest-earning assets.

HDFC Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	20.9%	21.6%	16.7%	19.8%	21.0%
Net Interest Margin (%)	4.3%	4.3%	4.1%	4.0%	4.1%
Advances Growth (%)	24.2%	20.1%	13.6%	19.9%	17.0%
Deposits Growth (%)	17.0%	24.2%	16.4%	16.8%	20.8%
Return on Equity(%)	17.1%	16.5%	16.5%	16.7%	17.2%

Data Source: Ace Equity

The company has also increased its profitability. The 5-year CAGR net profits stands at 20.1% propelling the lender's Return on Equity (RoE) which stands at 17.4% in the financial year 2023.

The company is optimistic about robust growth shortly. It is focussing on deposit mobilisation and branch expansion to drive growth and is well-placed to capitalise on the pickup in the corporate credit cycle.

HDFC Bank is currently facing setbacks, including delays in merger benefits and liability reductions, impacting its stock.

Since the December 2023 quarter results announcement on 16 January, the shares have experienced a nearly 14% decline.

Key factors include a miss in net interest margins (NIM) due to increased fund costs, elevated provisions, and a decade-low growth in earnings per share (EPS) in Q3, collectively contributing to the downward trend in shares.

Investors are worried the bank would need to play the deposit pricing game to garner high volume of deposits, thus shrinking its margins, dampening profitability.

However, while the short term worries remain, the long-term story of the lending major remains intact.

Others believe that the worst is almost over, and there should be an improving trend across all important parameters, with the expectations of long-term synergies from the merger,

After the fall, the stock is trading at a 5-year low P/BV of 2.8x, a 26% discount to its 5-year median P/BV of 3.8.

To know more about the bank, check out its financial factsheet and latest financial results.

#2 ICICI Bank

Next on our list is the second largest private bank in the country, ICICI Bank.

The bank has a strong presence in retail banking (close to 55% of total loans), project financing and overseas services for its Indian customers.

Through its subsidiaries and joint ventures, ICICI is also a key player in non-banking financial services, such as insurance (life and general), asset management and equity broking.

The lender enjoys an extensive distribution network of over 5,000 branches.

ICICI Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-37.5%	97.3%	80.1%	27.5%	33.7%
Net Interest Margin (%)	3.4%	3.7%	3.7%	4.0%	4.5%
Advances Growth (%)	14.1%	9.2%	12.1%	16.2%	17.8%
Deposits Growth (%)	16.3%	17.5%	19.9%	13.7%	10.9%
Return on Equity(%)	5.2%	9.7%	14.7%	15.5%	17.7%

Data Source: Ace Equity

Between 2019-2023, the advances grew at 5-year CAGR of 13.8%.

The bank has improved its asset quality drastically, with the net NPAs falling from 2.29% in FY19 to 0.51% in FY23.

The margins have been increasing every year from 3.4% in 2019 to 4.5% in 2023. This has culminated into a strong profitability, with the net profits reporting a 5-year CAGR of 30.5%.

Looking ahead, the lender is well-poised to capitalize on opportunities for risk-calibrated, profitable growth.

The company aims to boost market share across key segments given its strong franchise, internal collaboration and digital innovations.

In the last year, the stock has surged 23%, trading at a P/BV of 3.3, a measly 6% premium to its 5-year median.

To know more about the bank, check out its financial factsheet and latest financial results.

#3 Axis Bank

Third on our list is Axis Bank.

Axis Bank is the third-largest private-sector bank in India (in terms of loan book) with a pan-India presence of 5,000+ branches.

The private lender boasts a total loan book of over Rs 9 tn with retail loans garnering a large chunk.

The company maintains a well-diversified retail loans book which accounts for 59% of the bank's advances. The corporate & SME loans account for the balance 41%.

The company has improved its asset quality drastically, with the NPAs going from 2.06% in FY19 to 0.39 in FY23 while maintaining a healthy NIM of 3.2-4%.

In March 2023, Axis Bank closed the acquisition of the consumer businesses of Citibank India and its non-banking finance arm, Citicorp Finance (India) for a total amount of Rs 116 bn.

Therefore, the financials might not be comparable to the past years.

Axis Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	987.7%	-62.8%	286.0%	95.3%	-23.4%
Net Interest Margin (%)	3.4%	3.5%	3.5%	3.5%	4.0%
Advances Growth (%)	12.6%	15.1%	7.3%	15.9%	19.7%
Deposits Growth (%)	20.9%	16.6%	8.7%	17.6%	15.2%
Return on Equity(%)	7.6%	2.4%	7.6%	12.8%	8.8%

Data Source: Ace Equity

Axis Bank's loan book has been growing ahead of the industry and the lender is confident of a 400-600 bps lead in the coming years.

However, the company did express concerns over a slowdown in credit growth and limitations on deposit expansion in the near term.

The bank's management has indicated that it will remain in investment mode as the benign credit environment gives it additional comfort to invest in distribution and technology while protecting profitability.

The company enjoys a relatively well-capitalised balance sheet and is well-poised to grow over the long-term.

To know more about the bank, check out its financial factsheet and latest financial results.

#4 Kotak Mahindra Bank

Fourth on our list is Kotak Mahindra Bank.

Kotak Mahindra Bank is among the leading private sector banks in India with a total loan book (assets under management as of FY23) of nearly Rs 4 tn.

Kotak has a strong urban franchise in India with an extensive distribution network of more than 1,750 branches and 2,800 ATMs.

The lender enjoys a strong presence in the retail segment and is investing significantly in digital platforms.

Moreover, through its subsidiaries, it has also built a presence in businesses like auto loans, broking, life insurance and asset management.

Between 2019-2023, the advances and net profit reported a 5-year CAGR of 11% and grew at 19.2%, respectively.

While the company has maintained its NIMs in the range of 4-3-4.6% over the last 10 years, FY23 was higher at 5.3% driven by driven by our risk adjusted pricing on loans.

Its Return on Equity (RoE) has averaged 12.4% over the same period.

Kotak Mahindra Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	15.8%	20.9%	15.1%	20.5%	23.9%
Net Interest Margin (%)	4.3%	4.6%	4.5%	4.6%	5.3%
Advances Growth (%)	18.2%	2.6%	0.9%	20.7%	17.9%
Deposits Growth (%)	17.6%	15.8%	7.1%	11.2%	16.5%
Return on Equity(%)	1315.2%	1383.6%	1311.9%	1318.7%	1418.5%

Data Source: Ace Equity

The lender's asset quality has improved drastically, with the NPAs going down from 0.75% in 2019 to 0.37%. Moreover, its CASA

The company continues to guide for steady growth trend and aims to improve the mix of unsecured loans, expressing confidence in the quality of the underlying portfolio.

The lender boasts a well-capitalised balance sheet with a healthy CAR of 19.9% as on December 2023.

The stock hasn't moved much in the past year, reporting a 3.2% return. The stock is available at a P/BV of 3.1 times, a discount to its historical median of 4.3 times.

To know more about the bank, check out its financial factsheet and latest financial results.

#5 IndusInd Bank

Fifth on our list is IndusInd Bank.

The mid-sized bank caters to the retail and corporate. In retail, it has a significant presence in auto loans and microfinance.

The bank serves its customers through a nationwide network of 2,700+ branches and 2,939 ATMs and has doubled its advances in the last five years, reporting a 5-year CAGR of 16.2%.

IndusInd Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-8.5%	35.1%	-34.3%	64.0%	54.9%
Net Interest Margin (%)	3.8%	4.1%	4.2%	4.1%	4.3%
Advances Growth (%)	28.6%	10.9%	2.8%	12.4%	21.3%
Deposits Growth (%)	28.5%	3.7%	26.7%	14.6%	14.6%
Return on Equity(%)	13.3%	14.8%	7.6%	10.6%	14.5%

Data Source: Ace Equity

However, the growth in the business comes with erratic NPAs, casting a showdown over its asset quality.

While the bank had reported a massive jump in the net NPAs between in 2019, doubling from 0.39% in 2017 to 1.2% in 2019, things seemed to have changed.

Since 2019, the bank has been working towards improving its asset quality, bringing it back to the 2017-2018 levels.

The credit cycle uptick has helped the lender's profitability, which has been weak in the past few years.

The improvement in net profits and the margins have helped boost the return ratios. The RoE reported by the company has gone back to its pre-covid levels of 14%.

The bank has a lot of exposure to high-risk corporates leading to delinquencies in the past. However, it has successfully improved its business, maintaining an extra buffer for delinquencies.

All of this well-reflected in the stock price movement in the last year. The stock is up 36% since the beginning of 2023, led by strong quarterly performance. It now trades at Rs 1,512, a P/BV of 2.1 times.

To know more about the bank, check out its financial factsheet and latest financial results.

#6 Federal Bank

Sixth on our list is Federal Bank.

This private sector bank has been advancing at a fast pace in the past few years, boasting a branch network of over 1400.

Within the retail segment (54% of total advances in December 2023), the bank caters to retail banking (57% of advances), commercial vehicle (CV) and construction equipment (CE) CV/CE financing (15%), agriculture (23%), business (3%), and MFI (2%).

The wholesale banking segment (46%) comprises equally of commercial banking (CoB) and corporate and institutional banking (CIB).

The lender has doubled its advances in the last five years, registering a CAGR of 15.1%. And like its peers, the bank has also managed to reduce its net NPAs drastically, suggesting a massive improvement in asset quality.

It has achieved this by working on its collection and recovery methods and incorporating strict measures of evaluation for loan disbursements.

The business expansion combined with improved asset quality has strengthened the company's margins and RoE.

This year, the lender achieved a historic milestone with a first ever 4-digit profit number.

Federal Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	41.0%	21.1%	6.1%	19.3%	61.6%
Net Interest Margin (%)	3.1%	3.1%	3.2%	3.2%	3.3%
Advances Growth (%)	19.9%	11.9%	8.5%	10.7%	21.3%
Deposits Growth (%)	20.5%	12.9%	13.1%	5.5%	17.2%
Return on Equity(%)	10.0%	11.0%	10.5%	11.0%	15.4%

Data Source: Ace Equity

The net profit margin has improved from 9.4% to 13.4% in the past five years. This has trickled down to the RoE, boosting it from 7.6% to 10.2% in the same period.

The bank is expected to continue on this trajectory of growth with a stable outlook across all verticals.

Loan growth is expected to be broad-based across retail, agriculture and corporate segments.

However, given the tight liquidity environment in the coming year, margins are likely to remain subdued.

While the share price had moved up it fell back after the latest quarterly results. The stock is trading at a P/BV of 1.4 times, a 16% premium to the 5-year median of 1.2 times.

To know more about the bank, check out its financial factsheet and latest financial results.

#7 IDFC First Bank

Seventh on our list is IDFC First Bank.

IDFC First Bank operates a network of 809 branches and 925 ATMs across India.

The private lender is transforming from a corporate focussed low margin bank to a retail focused high margin bank.

It has been reducing its exposure to infrastructure loans, citing increased risks in that segment, and aims to bring it down further.

IDFC First Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-296.8%	51.2%	-117.0%	-72.6%	1778.2%
Net Interest Margin (%)	1.3%	3.6%	5.0%	6.0%	6.2%
Advances Growth (%)	65.4%	-0.8%	17.5%	17.2%	28.8%
Deposits Growth (%)	46.4%	-7.5%	36.0%	19.2%	36.9%
Return on Equity(%)	-11.2%	-16.9%	2.9%	0.7%	10.6%

Data Source: Ace Equity

In the last five years, IDFC First Bank has increased its advances at a CAGR of 19.1%. Its asset quality is not terrible with an NPA of 1.52% in the financial year ending 2022.

The bank's asset quality has consistently improved driven largely by retail, rural, and MSME finance segments, turning a new leaf.

The company sports a relatively clean balance sheet and is gearing its focus towards high-maintenance business.

It is confident of maintaining high margins in the future and is well capitalised for growth with a Capital Adequacy of 16.73% as of December 2023.

Recently, the bank raised Rs. 30 bn of fresh equity capital in October 2023.

The stock price has moved in tandem with its peers, reporting a total return of 43% since the beginning of 2023. It is trading a P/BV of 2 times.

To know more about the bank, check out its financial factsheet and latest financial results.

#8 Bandhan Bank

Eight on our list is Bandhan Bank.

Bandhan Bank serves the financial needs of the unbanked and under-banked, specialising in providing last-mile banking services.

Formerly India's largest non-banking financial company-microfinance institution (NBFC-MFI), the bank has changed in recent years.

Between 2019-2023, the advances have reported a 5-Yr CAGR of 28%.

However, over the same period, the bank's net profits have declined due to additional provisions for bad loans, impacting return ratios. The 5-year average RoE stands at 13%.

Bandhan Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	45.0%	54.9%	-27.1%	-94.3%	1644.6%
Net Interest Margin (%)	10.4%	8.1%	7.8%	8.2%	7.2%
Advances Growth (%)	33.4%	68.1%	22.5%	15.1%	11.5%
Deposits Growth (%)	27.6%	32.0%	36.6%	23.5%	12.2%
Return on Equity(%)	19.0%	22.9%	13.5%	0.7%	11.9%

Data Source: Ace Equity

The net NPAs have been rising, up from 0.58% in fiscal 2019 to 1.17% in 2023. The company's CASA (current account to savings account) ratio is also low at 32%, indicating a lower quality of deposits.

However, the bank's management is optimistic about normalizing asset quality, attributing it to enhanced collection efficiencies.

The lender has a network of 1,621 bank branches and is confident that the bank is on the expected growth trajectory.

However, the stock will only perform once there is consistency in growth, profitability and asset quality.

To know more about the bank, check out its financial factsheet and latest quarterly results.

#9 City Union Bank

Ninth on our list is City Union Bank.

City Union Bank is one of the oldest private-sector banks in India, with a major presence in urban semi-urban and rural centres in South India.

The bank caters to the MSME, retail and wholesale segments. The bank also helps provide both short and long-term loans to the agricultural sector.

Despite its legacy, the bank has reported a muted performance in the last few years. While most private banks recovered well after covid, City Union Bank recovered at a slower pace on asset quality metrics.

City Union Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	15.3%	-30.2%	24.5%	28.2%	23.3%
Net Interest Margin (%)	4.3%	4.0%	4.0%	4.0%	3.9%
Advances Growth (%)	17.3%	3.8%	6.6%	11.6%	6.7%
Deposits Growth (%)	17.0%	6.2%	9.1%	7.1%	9.9%
Return on Equity(%)	15.2%	9.4%	10.6%	12.2%	13.4%

Data Source: Ace Equity

Between 2019-2023, the advances and net profit have reported a 5-year CAGR of 9.6% and 9.1%, respectively.

The NIMs has been holding steady within a 4% range throughout this period. The returns have also been with the 5-year average RoE of 12%.

While the asset quality of the loans has improved, it remains high, with the NPAs down from 4% in FY21 to 2.36% in FY23.

The bank has transitioned into a phase marked by a significant reduction in NPA slippages, indicating a notable decrease in credit costs and a potential return of NPAs to pre-COVID levels.

This shift can result in considerably lower provisions and improved profitability.

Additionally, the management is actively working towards stimulating credit growth, targeting a double-digit increase going forward, give the soft launch of digital lending products.

The stock price reflects its performance, declining 6% in the past year, while the broader market index surged by 19%. It is available at a P/BV of 1.4x, 40% to its 5-year median P/BV of 2x.

To know more, check out the company's factsheet and quarterly results.

#10 Yes Bank

Last on our list is Yes Bank.

Yes, Bank caters to retail, MSME as well as corporate clients. It operates its investment banking, merchant banking and brokerage businesses through Yes Securities, a wholly-owned subsidiary.

After going through a difficult ordeal, Yes Bank seems to be turning a new leaf.

Yes Bank was grappling with the challenges posed by bad loans, causing disruptions as companies struggled to meet their repayment obligations.

The net profits where declining due to an increase in provisions for ageing bad loans.

Yes Bank Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Net Profit Growth (%)	-59.6%	-1061.4%	-78.8%	-130.5%	-30.8%
Net Interest Margin (%)	3.2%	2.2%	2.8%	2.3%	2.6%
Advances Growth (%)	18.6%	-29.0%	-2.7%	8.5%	12.3%
Deposits Growth (%)	13.4%	-53.7%	54.6%	21.0%	10.3%
Return on Equity(%)	6.5%	-67.6%	-12.7%	3.2%	2.0%

Data Source: Ace Equity

In response, Yes Bank made a strategic decision to offload these troublesome loans by selling them to JC Flowers ARC for a substantial sum of Rs 480 bn.

Along with this, the company reported strong quarterly results with a huge improvement in all important metrics, possibly indicating the lender is coming out of the woods.

Yes Bank's Net NPAs have decreased to 0.9% ( in September 2023 quarter), down from 1% in the last quarter and 3.6% in the same period of the previous fiscal year.

The Provision Coverage Ratio (PCR) improved to 56.4%, compared to 48.4% in the first quarter of the current financial year.

While the latest (December 2023) quarter results are yet to come out, the bank can post good numbers as the bank's asset quality is expected to remain stable due to the improvement seen in the recoveries in the past few quarters.

The bank's management is optimistic about expanding its net interest margin (NIM) by 100 basis points over the next three years.

This strategy involves attracting more low-cost deposits and extending loans to higher-yield clients.

To know more about the company, check out the company's factsheet and quarterly results.

In conclusion

The Indian banking sector will always remain a safe haven for investors due to its crucial role in the economy and projected loan demand driven by the robust GDP growth.

However, near-term concerns like pressure on bank margins could dampen investor interest for both large and small players.

While the long-term outlook remains promising, remember to do your research before investing in any banking stock.

The top 5 banks (by market cap) results in the December quarter ending 2024 is as follows.

Top 5 Bank Financial Snapshot (Q3FY2024)

	Net Interest Margin (%)	Return on Equity(%)	Advance growth (YoY)	Profit growth (YoY)	NPA	Price to book value
HDFC Bank	3.4%	15.8%	60.0%	27.0%	0.3%	2.8
Kotak Mahindra Bank	5.2%	13.8%	15.0%	8.0%	0.3%	3.2
ICICI Bank	4.4%	18.5%	18.5%	23.6%	0.4%	3.3
Axis Bank	4.0%	18.1%	22.0%	4.0%	0.4%	2.5
IndusInd Bank	4.3%	15.5%	20.0%	17.0%	0.6%	2.2

Data Source: Company Presentations

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...