India's private sector banks led gains in market capitalization in the three months to June 30 amid improvement in their financial metrics and positive sentiment in the Indian stock market.

Axis Bank Ltd.'s market capitalization rose 20.9% to 3.911 trillion rupees in the period, S&P Global Market Intelligence data shows. India's biggest private lender, HDFC Bank Ltd., posted a 16.5% increase in its market capitalization to 12.811 trillion rupees. Barring IndusInd Bank Ltd., the market capitalization of all private sector banks among the 20 largest banks in the country improved from the previous quarter.

Positive investor sentiment contributed to the increase in market capitalization. The benchmark S&P BSE Sensex index rose 7.3% in the second quarter, while the Nifty 50, another commonly tracked benchmark, was up 7.5%. The Nifty Private Bank Index rose 10.7% in the June quarter.

Several major Indian banks posted record profits in the financial year ended March 31, driven by high lending growth and improving asset quality. State Bank of India, India's largest bank by assets, reported a 20.6% increase in net income in the financial year ended March 31, helped by a 15.2% credit growth. HDFC Bank's full-year income rose 39.3% year-on-year.

Banks' overall advances rose during the financial year and higher profits boosted return on average equity (ROAE), the data shows. Axis Bank posted the largest increase in ROAE, up 997 basis points to 18.50%.

Financial performance at Indian banks has improved consistently over the past few years due to robust credit growth and efforts to curb nonperforming loans. Credit growth at private sector banks stood at 19.3%, while public sector banks recorded a 14.7% increase year-on-year at the end of March, RBI data showed. The cumulative nonperforming loans of the three largest private banks and three public banks fell to 2.483 trillion Indian rupees in the 12 months to March 31, down 11% from 2.791 trillion rupees a year earlier. The Reserve Bank of India expects the average gross nonperforming assets (NPA) ratio of Indian banks to further improve by the first half of the financial year started April.

India's GDP is likely to grow 7.2% in the fiscal year that started April 1, according to the Reserve Bank of India, allowing the south Asian nation to remain the fastest-growing major economy in the world. State Bank of IndiaThe credit growth, however, will likely ease from the 16.3% increase recorded at the end of March, analysts said.

Overall, 16 of the 20 largest banks in India posted an increase in market capitalization in the three months ended June, with five of them posting double-digit increases. Three of the four banks that saw their market capitalization decrease were public sector banks: Bank of India Ltd., Union Bank of India, and Punjab National Bank.

The top five banks retained their ranking during the quarter, led by HDFC Bank continuing to stay atop the list, followed by ICICI Bank Ltd.. State Bank of India, the country's biggest lender by assets, secured the third place in the ranking list in the quarter, while Axis Bank and Kotak Mahindra Bank Ltd. bagged the fourth and fifth place. AU Small Finance Bank Ltd. was a new entrant to the list, at the 19th position, after the lender's market capitalization rose 32.1% to 499.4 billion rupees.