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Is Banking Shares Good To Invest In 2023?

Banking Share

The banking industry is a major part of the economy of India which accounts for a substantial part of the GDP. It is a major driving force behind economic growth in the country as Indian banks consistently achieve high performance in these past years.

This has led to a lot of investors weighing Indian bank stocks as an appealing investment option. But, as with any decision, it is not without risks to take into consideration before making any decision to invest in Indian bank stocks in 2023.

One of the primary things to be considered in investing in banks is the general health of the banking sector.

In recent times the Indian banking sector has seen substantial growth, with the Reserve Bank of India (RBI) conducting a number of initiatives to improve the performance of the sector.

These initiatives include measures to enhance the efficiency and transparency that the bank system provides and efforts to improve the capacity of banks to meet capital requirements.

But, the banking sector has its own challenges, such as high numbers of non-performing assets (NPAs) as well as the effects of the COVID-19 epidemic in the country’s economy.

Globally, the sector of banking stood strong through the outbreak, thanks to extraordinary policy decisions by central banks as well as governments.

Better liquidity, higher capital buffers, and less leverage allowed them to take on the impact of the pandemic.

The measures like an end to the payment of loans, a suspension in the classification of assets or restructuring loans, as well as the restriction on dividend payments eased pressure while allowing banks lending to sectors that are productive. 

Another thing to think about when deciding to invest in Indian banks is the regulatory framework. The RBI is accountable for supervising the banking sector as well as adopting guidelines to regulate the sector.

In recent times the RBI has implemented a variety of measures to boost the industry which include the introduction of the Insolvency and Bankruptcy Code (IBC) and the issuance of new guidelines for the resolution of stressed assets.

Although these measures are expected to boost security in the banking industry, they also could lead to more oversight by regulators, which could impact the financial performance of banks.

The outlook for earnings is improving as a result of lower costs for credit and improved asset quality and a higher growth rate for top line.

It was reported that the RBI announced a 50-bps repo rate rise in its annual monetary policy meeting following a 40bps rate hike in the last month, indicating its determination to reign in the soaring inflation.

Fitch Ratings announced that it has updated its outlook for rating up to “stable” from “negative” for eight banks based in India which include SBI, ICICI Bank, Axis Bank, Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, Union Bank of India.

In addition, economic conditions may have a major impact on the overall performance of bank stocks. In 2023, India’s economic system is anticipated to recover from the COVID-19 epidemic.

Based on the International Monetary Fund (IMF) India’s GDP growth is forecast to be 6.9 percent in 2023, an increase from 5.9 percent in 2022.

The growth in the economy could result in higher demands for credit that can be beneficial to the banking sector. However, it’s crucial to think about the effects of interest rates and inflation on the profitability of banks.

Additionally, it is backed by stronger balance sheets and an improved outlook for credit demand. Around 74% of FDI can be incorporated in the private banking sector (up to 40% with the automatic route, and up to 74% with approval from the government).

The Indian banking sector is predicted to be the third largest domestic sector of banking by 2050.

About 425 million accounts in banks were created as part of the GoI Pradhan Mantri Jan Dhan Yojana and the accounts in Jan Dhan Yojana accounts reached $18.4 billion.

The government also permitted debit cards linked to UPI which allows users to pay via credit cards with UPI in the near future.

The RBI also issued its ‘Payments Vision 2025’ document that aims to triple the growth in electronic payments, a rise in debit card use and a reduction in cash in circulation.

Financial Highlights

The market capitalization of the banking sector is approximately 30 lakhs crores. It is estimated that the top five banks control 75% market share. Industry Net sales have grown by 2.04 percent.

Additionally the Operation profit has increased by 171 percent. The industry’s Profit After Tax (PAT) has grown by 52.59 percent on a year-to-year basis.

The rate of retail term deposits has been increasing throughout the board, but not in the same proportion to repo hikes. The term deposit rates that are wholesale have seen the highest increase.

The rate increase for savings was only done by Kotak, IDFC and Federal bank. Kotak bank has followed the lead by raising the savings rate by 50 bps up to 4% for balances greater than five million.

Following the epidemic of COVID-19 and the subsequent collapse of stock markets in India plunged sharply and mirrored global indicators.

The banking sector’s stocks were hit hard, reflecting the concerns of investors about the financial health of the sector however the effect was not consistent across banks or bank groups.

Then, the prices retreated in response to the policies implemented by the Reserve Bank and the Government of India. HDFC Bank leads the credit card market that is followed by SBI and ICICI Bank.

Additionally, SBI leads the debit card market, which follows by Paytm Payments Bank and Bank of Baroda. For India in the month of January, 2022 there were more than 940 million debit cards in use.

This number was much higher than what was the number in credit card transactions in the same month and was estimated to be about 70 million.

The growth in bank credit will increase even more as concerns about pandemics diminish. The growth in bank credit was by two-digit percentages, which indicates an improvement from the pandemic.

The NPAs of banks have largely reached their lowest point and the downward trend is likely to continue. Credit costs are likely to remain low thanks to alternative options and buffers for provisioning.

Overall, the quarter witnessed the continuation of a healthy business performance as asset quality improved.

In terms of growth in loans, HDFC Bank outperformed its counterparts, and Kotak as well as IDFC First Bank also had an impressive loan growth trajectory.

In a climate which is characterized by low rate of credit and low interest and a sluggish economy, the bank’s total revenue maintained its stability despite a slight decline in the largest portion that is interest income.

The decrease was mitigated by an impressive increase in the investment earnings. The trading income grew due to banks earning profits from decreasing G-Sec yields.


In the end it is clear that investing in Indian banks in 2023 could be an attractive alternative for investors, however it is essential to think about the risks that could be involved.

Considerations like the overall health of the banking industry and the economic and regulatory conditions and the financial health of each bank should be considered before making investments.

It is important to consult an experienced consultant in finance and carry out extensive research prior to making any investment decision.



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