Top 5 Private Banks By Growth

After facing turbulent times in the middle of 2022, private sector lenders have been doing relatively well. The above-average performance was led by an uptick in demand while maintaining healthy asset quality.

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

Here are five that have grown their businesses (as depicted by the growth in advances) faster than their peers in the past five years. Let's see how they're set up in the near term.

#1 HDFC Bank

First on our list is the HDFC Bank.

The private lender's advances have grown over 2.4x in the last five years at a 5-year compounded annual growth rate (CAGR) of 19.2%.

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

The net non-performing assets (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 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 15.4% in the financial year 2022.

HDFC Bank Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	21.40%	20.90%	21.60%	16.70%	19.80%
Advances Growth (%)	19.60%	24.20%	20.10%	13.60%	19.90%
Deposits Growth (%)	22.60%	17.00%	24.20%	16.40%	16.80%
Return on Equity(%)	18.40%	17.10%	16.50%	16.50%	16.70%

Source: Ace Equity

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.

It's also confident of long-term synergies from the merger with HDFC Ltd.

However the investors are not. Hence the stock price has been volatile in the past year but closed at the same price towards the end of the year. It is now trading at Rs 1,587, a P/BV of 3.5 times.

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

#2 IndusInd Bank

Next on our list is IndusInd Bank.

The bank has doubled its advances in the last five years, reporting a 5-year CAGR of 16.2%.

But the NPAs have been erratic in the same period. While they jumped from 0.39% in 2017 to 1.2% in 2019, they were consistently falling before that. The NPAs have halved since then, suggesting a massive improvement in asset quality.

IndusInd Bank Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	25.70%	-8.50%	35.10%	-34.30%	64.00%
Advances Growth (%)	28.20%	28.60%	10.90%	2.80%	12.40%
Deposits Growth (%)	19.80%	28.50%	3.70%	26.70%	14.60%
Return on Equity(%)	16.50%	13.30%	14.80%	7.60%	10.60%

Source: Ace Equity

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

While the net profit has grown, the margins have weakened. This has affected the RoE, which has been falling consistently.

But this weak performance led to exposure to high-risk corporates leading to delinquencies in the past. The bank is confident of improving its business and maintaining an extra buffer for delinquencies.

This is visible in the stock price movement in the past year. The stock is up 28% since the beginning of 2022, led by strong quarterly performance. It now trades at Rs 1,185, a P/BV of 1.9 times.

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

#3 Federal Bank

Third on our list is Federal Bank.

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

Federal Bank Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	6.60%	41.00%	21.10%	6.10%	19.30%
Advances Growth (%)	25.50%	19.90%	11.90%	8.50%	10.70%
Deposits Growth (%)	14.70%	20.50%	12.90%	13.10%	5.50%
Return on Equity(%)	8.60%	10%	11%	10.50%	11%

Source: Ace Equity

The share price mirrors the lip-smacking performance and a well-capitalised balance sheet. In the past year, Federal Bank's stock is up 48% and is trading at a P/BV of 1.5 times.

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

#4 RBL Bank

Fourth on our list is RBL Bank.

The bank's advances have grown at a 5-year CAGR of 15.3%. Asset quality hasn't dwindled, as depicted in the net NPAs.

The net NPAs of the bank have a patchy history. They shot up in the financial year 2022 but have been falling off late.

This has affected the profitability and the RoE drastically. The margins have depleted in the past five years from 13.8% in the financial year 2018 to -2% in 2022. This has led to a fall in RoE from 9.5% in 2018 to -1.3% in 2022.

The ineffective governance that led to poor asset quality and inadequate provision is responsible for the same.

RBL Financial snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	43.30%	34.80%	-41.90%	5.90%	-131.40%
Advances Growth (%)	36.70%	34.90%	6.80%	1.10%	2.40%
Deposits Growth (%)	20.10%	24.80%	33.30%	38.70%	33.40%
Return on Equity(%)	11.60%	12.10%	5.50%	4.60%	-1.30%

Source: Ace Equity

Despite this, the lender promises that everything is behind it and exudes confidence for the future. The quarterly numbers have improved, propelling the stock price but there is still a lot of uncertainty regarding the future of the business.

After touching its all-time low price of Rs 77, the stock is now trading at Rs 184 per share. This is a P/BV of 0.88 times.

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

#5 IDFC First Bank

Last on our list is IDFC First Bank.

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 a NPA of 1.52% in the financial year ending 2022.

However, the bank lacks a proven record of profitability and strong return ratios. It has reported a loss twice in the past 5 years.

But the lender seems to be turning a new leaf. The company sports a relatively clean balance sheet and is gearing its focus towards high margins business. It is confident of maintaining high margins in the future.

IDFC First Bank Financial snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Net Profit Growth (%)	-10.10%	-296.80%	51.20%	-117.00%	-72.60%
Advances Growth (%)	5.60%	65.40%	-0.80%	17.50%	17.20%
Deposits Growth (%)	19.80%	46.40%	-7.50%	36.00%	19.20%
Return on Equity(%)	6.40%	-11.20%	-16.90%	2.90%	0.70%

Source: Ace Equity

The stock price has moved in tandem with its peers, reporting a total return of 20% since the beginning of 2022. It is trading a P/BV of 1.74 times.

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

In conclusion

The banking sector will always be a haven for investors as banks form the backbone of the economy.

And now, with the government's capital expenditure programs to boost demand, there is a clear thrust towards reviving capital spending in infrastructure.

The renewed focus towards infrastructure augurs well for the credit demand in the country over the near term. It pushes the banking sector on the fast track to growth.

If the government manages to walk the talk, the entire sector can benefit strongly from it.

However, not all stocks are worth analysing. So, conduct your research before allocating your hard-earned money.

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...