5 Indian Banks with the Lowest NPAs. Here's How they Did It...

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  
  • Home
  • Views On News
  • Sep 27, 2021 - 5 Indian Banks with the Lowest NPAs. Here's How they Did It...

5 Indian Banks with the Lowest NPAs. Here's How they Did It...

Sep 27, 2021

Growing NPAs (non performing assets) have become an unending nightmare for the Indian banking sector due to the pandemic.

While some banks have implemented measures to mitigate this, others may be at the beginning of a new NPA cycle.

Although there is no 'acceptable limit' for NPAs, it's considered manageable if the bank's NPAs are under 3%.

Here are 5 Indian banks with the lowest NPAs.

#1 HDFC Bank

HDFC Bank is India's largest private sector bank by assets and by market capitalisation.

The bank, despite having less than 10% share of the banking sector, is one of the most respected banks in the country.

When it comes to servicing retail customers, the bank relies on the model of wide franchise and low-cost deposit base. This ensures good pricing power and sustainability of above average NIMs (net interest margins).

--- Advertisement ---
Rahul Shah's Lazy Millionaire Summit Is Now LIVE...

Discover the Master Key to Turning Every Market Crash to Your Advantage

Hurry up! Join in now...

Click Here to Join the Lazy Millionaire Summit

That sourcing home loans for parent HDFC is a huge advantage for the bank cannot be undermined. But even otherwise being extremely conservative with margins and provisioning policies has been very rewarding.

It thus comes as no surprise to us that HDFC Bank holds the distinction of reporting more than 20% YoY profit growth every quarter for over 40 quarters. All this while, its net NPAs have never crossed 0.5% of loans!

Even in the year 2020, where the entire banking industry was hit due to the pandemic, HDFC Bank reached out to large corporates for their funding requirements, which it could do because of its strong balance sheet.

In its latest quarterly results, the bank's net NPA ratio stood at 0.48%.

Its bad-loan write-offs doubled to Rs 31 bn from Rs 15 bn in the June 2020 quarter. It also offloaded its non-performing assets (NPAs) amounting to Rs 18 bn to maintain a robust asset quality profile.

#2 IndusInd Bank

Another private sector bank, which has come a long way, and has a strong resemblance to HDFC Bank in the past few years is IndusInd Bank.

The bank was incorporated around the same as HDFC Bank, in 1994, by Srichand Hinduja, one of the promoters of the Hinduja group.

It was not until 2008, when Romesh Sobti along with some of his colleagues at ABN Amro NV, took over the reins of IndusInd bank, that the entity gained some vigour.

Equitymaster's Stock Screener: Identifying High-Potential Stocks Has Never Been this Easy

Despite above average loan growth, even in the most difficult of times, IndusInd Bank has not compromised on its asset quality.

The bank's net NPA ratio, like in the case of HDFC Bank, has consistently stayed below 0.5% over the past five years.

The bank also has a leadership position in certain retail asset classes with a pan India franchise which has strengthened its ability to manage the asset quality in those segments.

In its latest quarterly results, the bank's gross non-performing assets (GNPAs) stood at 2.88% as it was impacted by the second wave of Covid-19 while the net NPA ratio rose 15 basis points sequentially to 0.84%.

However, the impact of the same was mitigated by the fact that the bank carries unutilised provisions of Rs 20.5 bn (not a part of the provision coverage) that can be utilised in case it sees further slippages.

#3 Kotak Bank

Third on the list is Kotak Mahindra Bank.

The bank is the third largest Indian private sector bank by market capitalisation. It offers products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.

Over the last couple of years, Kotak Mahindra Bank has demonstrated a highly consistent and healthy historical track record.

The bank has sustained net NPAs below 1.5% of its loan book all these years. Its institutional memory of tiding over one credit crisis after the other for nearly 25 years has also served it well.

--- Advertisement ---
There is a new paradigm shift currently unfolding across the global economic landscape...

And at the heart of this massive SHIFT is...


India is on the verge of a multi-trillion-dollar rebirth that could potentially mint countless new millionaires...

If you are on the right side of this mega shift, then it could be your biggest opportunity to build potentially massive wealth over the long term.

Click here to find all the details...

The bank's loan book has grown at a CAGR of over 25% over the past decade. This has been supported by a healthy contribution of low-cost deposits (current and savings accounts).

In its latest quarterly results, the bank's asset quality weakened as gross NPAs stood at 3.56%. However, net NPAs still came in below 1.5% at 1.28%.

The bank's Covid-19 related provisions stand at Rs 12.8 bn in accordance with the Resolution Framework for Covid-19 and MSME announced by RBI. It has also implemented a total restructuring of Rs 5.5 bn as of 30 June 2021.

#4 Federal Bank

Federal Bank (FBL) is another private sector bank with robust asset quality.

The bank is headquartered in Kerala and handles more than 15% of India's total inward remittances.

It has a customer base of over 10 m, including 1.5 m NRI customers and a large network of remittance partners across the world.

The bank constantly improves its collection and recovery architecture to improve its asset quality. It also uses various analytics tools to predict the propensity to default and collection score of the borrowers.

During the financial year 2021, while there was large increase in NPAs in almost all banks, Federal Bank exhibited a decline in NPAs due to diligent selection of borrowers.

Its slippage ratio also came in at 1.6%, lower than 1.7% in 2020 and the management has guided further similar slippage ratio for FY22, in line with its historical trend.

In the latest quarterly results, the bank's gross NPAs rose to 3.5% while its net NPAs increased marginally to 1.23% largely due to the Covid-19 related challenges faced by borrowers.

However, the bank has reasonably provided for the Covid-19 related impact in 2021 and the June 2021 quarter for restructuring and the subsequent rise in delinquencies.

#5 ICICI Bank

ICICI Bank is one of the three systemically important banks in India with a 7% market share in the banking sector.

Along with its subsidiaries, the bank has a wide presence across various financial services verticals such as life insurance, general insurance, merchant banking, asset management, etc, with a leadership position in many of these businesses.

The bank's net NPAs have stayed around 2% in the last decade with an exception in the years 2017 and 2018 where it saw high additions to NPAs in its corporate and small and medium enterprises loan portfolio.

With the onset of Covid-19 during 2021, the bank did see an impact on asset quality across segments, resulting in an uptick in the overall fresh NPAs.

However, despite a rise in slippages, the net NPAs remained lower at 1.14% as on 31 March 2021 against 1.54% as on 31 March 2020.

The bank has also changed its provisioning policy on non-performing assets for certain loan categories to make it more conservative resulting in higher provisions.

In its latest quarterly results, the bank reported a net NPA ratio of 1.16%.

To conclude...

A mounting level of NPAs in the banking sector can severely affect the economy in many ways. If NPAs are not properly managed, it can cause financial and economic degradation which in turn can signal an adverse investment climate.

With unpaid corporate loans at an all-time high in India, the government has set up a bad bank to resolve such loans, paving the way for a major clean-up of the banking system.

The new institution will take over bad loans from commercial banks amounting to Rs 2 bn, a quarter of the total stressed loans in the country.

While there is no direct capital infusion by the government, it has mobilised capital from eight public sector banks (PSBs) - Canara Bank, Bank of Baroda, Punjab National Bank, Bank of India, Bank of Maharashtra, SBI, Union Bank of India, and Indian Bank.

How this bad bank pans out remains to be seen. Meanwhile, stay tuned for more updates from this space.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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...

Ayesha Shetty

Ayesha Shetty is a financial writer with the StockSelect team at Equitymaster. An engineer by qualification, she uses her analytical skills to decode the latest developments in financial markets. This reflects in her well-researched and insightful articles. When she is not busy separating financial fact from fiction, she can be found reading about new trends in technology and international politics.

Equitymaster requests your view! Post a comment on "5 Indian Banks with the Lowest NPAs. Here's How they Did It...". Click here!


More Views on News

HDFC Bank vs Kotak Mahindra Bank: Which Stock is Better? (Views On News)

Jan 21, 2022

These two banks epitomize high quality financial management. Check out how they fare against each other.

HDFC Bank vs ICICI Bank: Which Stock is Better? (Views On News)

Jan 6, 2022

HDFC Bank reigns over the banking industry. However, ICICI Bank is inching closer in terms of financial performance. Which bank will emerge as a leader?

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

PNB Reports an Over Three-Fold Jump in Net Profit as Provisions Fall (Views On News)

Aug 3, 2021

The reduction in provisions for bad loans and asset quality stability may have aided the lender's earnings.

Here's Why IndusInd Bank's Net Profit Doubled in the June Quarter (Views On News)

Jul 28, 2021

All you need to know about the latest quarterly results of IndusInd Bank.

More Views on News

Most Popular

Differences Between Trading and Investing

A simple to guide to understand the difference between investing and trading

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 24, 2022 (Close)


  • Track your investment in HDFC BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks