Indian banking stocks to keep an eye on

The past couple of years has been strenuous for India’s financial services sector, with banks drowning in bad debt and profits declining. However, Indian banks and NBFCs (non-banking financial companies) have seen their asset quality and profits rise after the governance and transparency rules were improved to global standards. This makes Indian banking stocks attractive.

Earlier this year, India Ratings and Research revised its outlook for the banking sector to ‘improving’ for FY23 from its previous guidance of ‘stable’. The agency said the sector’s health is the best it is in decades and expects credit growth to hit 10% in 2022-23, the first double-digit growth in eight years.

Overall, the Indian banking sector consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions (as of September 2021).

Let us explore some of the best Indian banking stocks that investors can keep an eye on for long-term returns.

State Bank of India (SBI)

The oldest bank in India, state-owned SBI has a hefty balance sheet, and thousands of branches and is seeing rising profits. SBI has diversified into pension funds, general insurance, custodial services, etc. The stock is part of India’s benchmark indices Nifty 50 and SENSEX. The stock closed at Rs 532.45 on July 28, and brokerages in India have a target price of between Rs 565 to Rs 660 for the scrip. The biggest shareholder in the bank is the Indian government with a 57.57% stake. SBI has a Piotroski* score of 6.

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Bank of Baroda

Owned 63.97% by the Indian government, Bank of Baroda is the pioneer in the various customer-centric initiatives in the banking sector. The century-old bank was founded by the Maharaja of Baroda back in 1908 and now has nearly 10,000 branches. Bank of Baroda ended at Rs 117.15 on July 28, and brokerages in India see a target price of as much as Rs 135. The Piotroski score of the bank is 5.

Canara Bank 

This public sector bank was hit by loan frauds by high-net-worth individuals in India but has now recouped the majority of its losses. Established in 1906, Canara Bank is 62.93% owned by the Government of India. It recently launched a ‘super-app’ for its customers and the stock closed at Rs 226.20 on July 28. Indian brokerages have a target price of as much as Rs 306. Canara Bank has a Piotroski score of 5.

HDFC Bank

HDFC is the biggest private sector bank of India and has three main businesses — wholesale banking, retail banking and treasury. The stock closed at Rs 1,416.85 on July 28, and Indian brokerages have a target price of as much as Rs 1997 for the scrip. HDFC Bank has a Piotroski score of 2.

ICICI Bank

ICICI has consistently delivered an industry-leading performance with increasing profits, loan books and interest margin. The stock has given 18.91% returns in the past year and has risen 95.94% in the past three years. ICICI shares ended July 28 at Rs 814.60, with several analysts stating a target price above Rs 1,000. The bank has a Piotroski score of 5.

Kotak Mahindra

Kotak Mahindra Bank was established as Kotak Mahindra Finance back in the 1980s and received a banking license in 2003 making it the first NBFC converted into a bank. Kotak Mahindra is engaged in commercial banking, car finance, asset management, investment banking, stock broking, and life insurance. The stock ended at Rs 1,828.50 on July 28, and Indian brokerages have a target price of as much as Rs 2340 for the scrip. ICICI Bank has a Piotroski score of 3.

*The Piotroski score is a number between zero (worst) and 9 (best) used to determine the financial strength of a company.