Banks are known as the backbone of an economy because they maintain sufficient liquidity by circulating money.
They provide people a platform to park their surplus cash as well as borrow when they fall short.
Banking stocks are very closely linked to economy as both credit growth and margins are dependent on GDP growth and interest rates.
Banks tend to have high non-performing assets (NPAs) when interest rates are high and economy is underperforming and vice versa.
The best time to buy banking stocks is when interest rates start falling as the cost of borrowing for banks goes down immediately while the interest, they charge on loans stays high and falls with a lag.
For more details, check out our banking sector report . You can also check out Equitymaster's powerful stock screener to find the top banking stocks in India.
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