Behind every thriving economy, there’s a strong and accessible banking system paving the way for growth and development. India is no exception to this trend, as its banking sector undergoes a rapid expansion fueled by technological advancements. Despite global challenges, the Indian banking industry remains resilient, boasting impressive growth in savings and deposits across major banks.
Let’s explore how this promising landscape is shaping the future of India’s economy. Here’s a look at the top 5 banking stocks that have low NPAs and are currently trading 15% below their 52-week highs.
Data is as of 15 Feb 2023.
Criteria for stock selection
Before sharing the stock names, these are the 2 criteria used for stock selection:
#1 – Banks with low Net NPA Ratio in Q3 FY22
NPAs or Non-Performing Assets are loans or advances extended by banks that have stopped generating income or principal repayments for a specified period, typically 90 days, leading to financial losses for the bank.
# 2 – Stocks trading at discount of over 15% to 52-Week High prices (as of Feb 15, 2023)
Bank stocks that are most discounted from their 52-week high prices.
Ujjivan Small Finance Bank
| STOCK | DISCOUNT TO 52 WEEK HIGH | NET NPA RATIO % Q3 FY22 | Stock Price as of 15 Feb | Market Cap as of 15 Feb |
| Ujjivan Small Finance Bank | -17.30% | 0.1 | Rs. 27.70 | Rs. 5,414 Cr |
Ujjivan bank stocks are currently trading at a 17.3% discount on their 52-week high price.
About the bank
Ujjivan Bank’s remarkable journey began as a NBFC in 2005, and since acquiring a banking license from the RBI in 2017, it has grown into a leading scheduled bank. In 2019, the bank’s IPO was oversubscribed 170 times, a testament to its popularity and potential for success.
Financial performance
Top highlights of the bank’s financial performance are:
- Bank’s Net NPA for Q3 FY23 was 0.1%
- The bank managed to scale up its Capital Adequacy ratio from 19.9% to 26% in a matter of only 1 financial year.
- In Q3 FY23, the bank earned a Net Profit of Rs. 293 crores, compared to losses of Rs. 34 crores in the same quarter of the previous year. The main drivers of this profit growth are increased net interest income and write-off of bad loan provisions.
Source- Ujjivan Bank Investor Presentation
Future prospects
Ujjivan Bank’s success is largely attributed to its unique business model, which primarily focuses on micro loans ranging from Rs. 2,000 to Rs. 60,000, minimizing the risk of financial impact from defaulters. Additionally, the bank’s high interest rates of over 20% further mitigate lending risk, paving the way for sustainable growth in the years to come.
Bank of Maharashtra
| STOCK | DISCOUNT TO 52 WEEK HIGH | NET NPA RATIO % Q3 FY22 | Stock Price as of 15 Feb | Market Cap as of 15 Feb |
| Bank of Maharashtra | -24.40% | 0.5 | Rs. 27.40 | Rs.18,441 Cr |
Bank of Maharashtra stocks are currently trading at a 24.4% discount to their 52-week high price.
About bank
Bank of Maharashtra (BOM) is a PSU which is currently 90% owned by the government. In the past, the bank has faced various issues like poor asset quality, high cost to income ratio, sub-par return ratios, etc. However, the bank’s performance has been improving in recent years.
Financial performance
Top highlights of the bank’s financial performance are:
- Bank of Maharashtra’s Net NPA came down from 0.77% to 0.5% in Q3 FY23.
- Among all public sector banks, Bank of Maharashtra’s Capital Adequacy ratio is highest at 17.53%.
- Bank’s Net profits for Q3 FY23 saw a 139% jump to touch Rs. 775 crores. Main drivers of this profit growth are increased net interest income and drop in provisions plus contingencies.
Source - BOM investor presentation
Future prospects
Apart from improving financials, Bank of Maharashtra has been focusing on consistently expanding its branch network across the country. Apart from this, the bank is also focused on digital enhancements.
Tamilnad Mercantile Bank
| STOCK | DISCOUNT TO 52 WEEK HIGH | NET NPA RATIO % Q3 FY22 | Stock Price as of 15 Feb | Market Cap as of 15 Feb |
| Tamilnad Mercantile Bank | -16.60% | 0.8 | Rs. 457.60 | Rs. 7,246 cr |
Tamilnad Mercantile Bank stocks are currently trading at a 16.6% discount to their 52-week high price.
About bank
Not many may know that Tamilnad Mercantile Bank happens to be one of India’s oldest and leading private sector banks with an almost 100-year-old history. The bank went public with an IPO in 2022.
Financial performance
Top highlights of the bank’s financial performance are:
- Tamilnad Mercantile bank has managed to successfully and very quickly bring down its Net NPA from 1.44% in Q3 FY22 to 0.75% in Q3 FY23.
- Bank’s Capital Adequacy ratio has climbed up to reach 24.44%.
- In Q3 FY23, bank’s Net profits saw a 38% jump to touch Rs. 279 crores. This growth is mainly driven by rising deposits and higher interest income.
Source- https://www.tmb.in/doc/Investor%20Presentation%20Q3FY23-Final.pdf
Future prospects
As per bank’s MD and CEO S. Krishnan, “The client-centric approach and customer service is the bank’s main strength”. The bank enjoys a stronghold in the MSME sector with deep customer relationships. Lastly, the bank focuses on slow but calculated growth.
IDBI Bank Ltd.
| STOCK | DISCOUNT TO 52 WEEK HIGH | NET NPA RATIO % Q3 FY22 | Stock Price as of 15 Feb | Market Cap as of 15 Feb |
| IDBI Bank Ltd. | -21.80% | 1.1 | Rs. 48.50 | Rs. 52,149 cr |
IDBI Bank stocks are currently available at a 21.8% discount to their 52-week high price.
About bank
IDBI or Industrial Development Bank of India is jointly owned by the Indian government and LIC with 94.72% ownership.
Financial performance
Top highlights of the bank’s financial performance are:
- IDBI Bank’s Net NPA came down to 1.1% in Q3 FY23 versus 1.7% in Q3 of the previous year.
- Bank’s Q3 FY23 Capital Adequacy ratio stood at 20.14% versus 16.75% a year ago.
- The bank’s Net profits climbed up 60% to reach Rs. 927 crores. This profit growth was mainly driven by lower provisioning and better interest income.
Did you know
Provisioning in banks means setting aside some money from profits to cover any future losses that may occur. It helps ensure a bank’s stability and ability to operate even if it faces losses.
Future prospects
The Government and LIC have announced plans to sell their combined 60.72% stake in IDBI. As part of this process, the government has invited bids from private players interested in acquiring a stake in IDBI.
IDBI’s future goals include maintaining Net NPA levels at 1.1%. Additionally, bank plans to achieve at least 12% business growth.
DCB Bank Ltd.
| STOCK | DISCOUNT TO 52 WEEK HIGH | NET NPA RATIO % Q3 FY22 | Stock Price as of 15 Feb | Market Cap as of 15 Feb |
| DCB Bank Ltd. | -23.50% | 1.4 | Rs. 108.05 | Rs. 3,364 cr |
DCB Bank stocks are currently trading at a 23.5% discount to their 52-week high price.
About bank
Development Credit Bank or DCB is a new generation private sector bank with 418 branches across India.
Financial performance
Top highlights of the bank’s financial performance are:
- DCB’s Q3 FY23 Net NPA stood at 1.4%, down from 2.55% in Q3 of previous year.
- Bank’s Capital Adequacy ratio is at 16.26%.
- Q3 FY23 saw the bank’s Net profits jump 52% to reach Rs. 114 crores. This growth was led by reduced bad loans.
Source - https://www.dcbbank.com/pdfs/Investor-Presentation-Q3-FY2022-23-January-28-2023.pdf
Future prospects
As of Dec 31, 2022, DCB’s balance-sheet size was at Rs. 32,966 crores. In the next 4 years, the bank aims to double this balance sheet size by focusing on areas like Mortgages to MSMEs, Gold loans, Construction finance, and Co-lending segments.
DCB Bank also wants to bring down its Net NPA from 1.4 to 1.25% in the future.
Conclusion
These were the 5 banking stocks with low NPAs as compared to their competitors and whose stocks are currently trading at a significant discount to their 52-Week high price. To enjoy a well-diversified portfolio, investors must consider including banking sector stocks in it.
FAQs
If the interest or principal remains overdue for a period 90 days or three months and above the loan account is classified as a Non-Performing Asset (NPA).
Some of the commonly used ratios for analyzing banks include the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the efficiency ratio, the loan-to-deposit ratio, and capital ratios.
Some of the factors impacting a bank’s performance include the Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Assets (ROA), Net Interest Margin (NIM), and Loan to Deposit Ratio (LDR).
Although banks are getting increasingly complex, the main drivers of their performance include earnings, efficiency, risk-taking and leverage.
