Indian Banks Witness Strong Recovery with Robust Balance Sheets, Minimal NPAs, and Surge in Profits: CLSA Report

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Mumbai: Indian banks, having weathered turbulent governmental and bad loan challenges, have now positioned themselves notably stronger, with significantly fortified balance sheets and soaring profits, as per a report by CLSA (formerly Credit Lyonnais Securities Asia), a prominent capital markets and investment group.

CLSA stated, “We believe Indian banks are well placed after a rollercoaster decade. Balance sheets are the strongest they have been in over a decade, and profits have rebounded sharply (quadrupling in 10 years).”

The report highlighted that the return on equity (ROE) in the Indian banking sector is currently at its highest since the financial year 2011. It also anticipated that deposit growth would align with accelerated loan growth, which has risen from 10 per cent to 15 per cent on average over the past two years from FY12-22.

Noting the optimistic outlook in the sector, CLSA projected that private sector banks, which have recently underperformed in the stock market, are expected to deliver better returns due to improved business prospects. However, it observed that public sector banks have outperformed private sector banks in the last year and over the past five years.

The report also pointed out that over the last decade, private sector banks have surpassed PSU banks in current account (CA) deposits and have reduced non-deposit borrowings. It emphasized that net non-performing loans (Net NPL) have dropped to their lowest in a decade, driven by enhanced asset quality, stronger provision buffers, and improved capital positions.

Profit after tax (PAT) for the banking sector has seen a significant recovery, quadrupling over the past decade. The sector’s ROE of 15 per cent is the highest since FY11.

The report highlighted that sectoral loan growth has accelerated from an average of 10 per cent over the past decade to 15 per cent in the last two years, driven across all sub-segments, potentially benefiting from shifts from corporate bond substitution.

Over a longer period, loan growth has remained aligned with deposit growth. Furthermore, the quality of corporate credit has notably improved over the past 5-7 years, according to CLSA’s observations.

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