SBI and ICICI Bank Shine Despite Challenges in India Banking Sector
In the Indian banking sector, two major players—SBI and ICICI Bank—have stood out with impressive performance over the past year. While the Nifty Bank Index’s 12 leading banks provided a return of 15%, both SBI and ICICI Bank outperformed, delivering returns of 40% and 34%, respectively. However, despite these stellar performances, the banking sector is grappling with several challenges, including slow deposit growth, declining net interest margins (NIMs), and rising defaults on unorganized loans.
Rising Concerns Over Unorganized Loans
A major concern in the banking sector has been the growth of unorganized loans, including credit card debt, personal loans, and microfinance. These loans had been rising rapidly, but regulatory measures by the RBI have slowed this trend. Annual growth in this segment dropped from 30% in September 2023 to just 13% recently. Despite these challenges, both SBI and ICICI Bank have shown resilience, reducing their non-performing assets (NPAs).
ICICI and SBI’s Strong Performance
According to Nomura, ICICI Bank’s valuation of 2.8x by the end of 2026, and SBI’s 1x for FY26, indicate stability and strength in the financial performance of both banks. ICICI Bank is expected to maintain a return on assets (RoA) of 2.3% and a return on equity (RoE) of 18%, while SBI’s RoA is projected at 1.0%, with an RoE between 16% and 18%. Although recent reports suggest a decline in NIMs, with SBI’s dropping by 15 basis points to 3.14% and ICICI’s declining by 26 basis points to 4.27%, both banks remain strong contenders in the sector.
Mutual Fund Shifts and Rising Valuations
While both banks have improved their performance, mutual funds have recently reduced their holdings in ICICI Bank and SBI. Investors are now turning their attention to other banks like Axis Bank, HDFC Bank, and Kotak Mahindra Bank, considering them more attractive. The growing valuations of ICICI Bank and SBI have made them relatively expensive compared to their peers, but analysts believe that their strong position and potential for increased loan growth could lead to further success.
Despite facing sector-wide challenges, SBI and ICICI Bank have demonstrated resilience, positioning themselves as key players in India’s banking landscape.
