bank stocks with low npa
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.
Before sharing the stock names, these are the 2 criteria used for stock selection:
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.
Bank stocks that are most discounted from their 52-week high prices.
| 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.
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.
Top highlights of the bank’s financial performance are:
Source- Ujjivan Bank Investor Presentation
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.
| 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.
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.
Top highlights of the bank’s financial performance are:
Source - BOM investor presentation
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.
| 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.
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.
Top highlights of the bank’s financial performance are:
Source- https://www.tmb.in/doc/Investor%20Presentation%20Q3FY23-Final.pdf
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.
| 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.
IDBI or Industrial Development Bank of India is jointly owned by the Indian government and LIC with 94.72% ownership.
Top highlights of the bank’s financial performance are:
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.
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.
| 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.
Development Credit Bank or DCB is a new generation private sector bank with 418 branches across India.
Top highlights of the bank’s financial performance are:
Source - https://www.dcbbank.com/pdfs/Investor-Presentation-Q3-FY2022-23-January-28-2023.pdf
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.
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.
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.
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