The market capitalization of India's largest banks fell during the October–December 2024 period as investor sentiment turned sour amid lackluster credit growth and shrinking margins.
Fifteen of the 20 biggest banks by market capitalization in India posted quarter-over-quarter declines in their market cap in the period, data compiled by S&P Global Market Intelligence showed. IndusInd Bank Ltd. saw the steepest fall of 33.7% in the sample, followed by AU Small Finance Bank Ltd. with a 24.4% decline and IDFC First Bank Ltd. with a 16.9% decline.
"The reason that we saw decline in market cap of many banks last quarter are possibly due to lackluster credit growth, net interest margin shrinking due to a rise in nonperforming assets and tighter regulatory environment by the Reserve Bank of India," Anand K. Rathi, co-founder of MIRA Money, told Market Intelligence in an email.
India's benchmark Nifty 50 Index is down nearly 12% after touching an all-time high in September 2024 as the South Asian nation's economic prospects appear less bright. The economy grew just 5.4% year over year in the July–September 2024 quarter, compared with 8.1% in the same period a year ago, government data published in November 2024 showed.
HDFC Bank Ltd., the country's largest private-sector bank by assets, stayed at the top of the ranking with a market cap of 13.559 trillion rupees, up 2.6% from the previous quarter. Two other private-sector banks, The Federal Bank Ltd. and ICICI Bank Ltd., also logged an increase in market cap for the quarter, with Federal Bank gaining 1.7% to 490.7 billion rupees and ICICI Bank 0.9% to 9.047 trillion rupees.
Two public sector banks rounded up the five lenders that posted gains in their market cap. State Bank of India, the country's biggest bank by assets, posted a 0.9% rise in market cap to 7.095 trillion rupees, while Indian Bank's was up 1.1% to 713.8 billion rupees.
Though economic growth in the rest of the fiscal year to March 31, 2024 is expected to bounce back, Indian banks' nonperforming loans may rise and their capital to risk-weighted assets ratio may edge lower over the next 18 months, the Reserve Bank of India said in its Financial Stability Report released Dec. 30, 2024. Banks have shown a moderation in credit growth for both public and private sector banks in September 2024, the central bank said.
"Credit offtake has been poor especially due to lower corporate borrowings, tighter household borrowings and hot capital markets," Rathi said. More companies are also going the stock market route to raise money rather than through banks, Rathi said. "This along with rising nonperforming assets means lower earnings growth and hence [bank] stocks are impacted," he added.
Asset quality among banks improved in the quarter ended September 2024, according to the central bank, with their gross nonperforming asset ratio falling to a 12-year low of 2.6% in September 2024.