India’s Banking Sector Growth Potential

The banking sector stocks in India have been depressed in the recent past and this has been as a result of several factors including rising NPAs for public sector banks and sluggish economic growth impacting credit growth.

However, I see this weakness in the banking sector stocks as a good opportunity to consider exposure to quality banking stocks in India. In particular, I am bullish on ICICI Bank (NYSE: IBN) and HDFC Bank (NYSE:HDB). While specific reasons to be bullish on these two private sector banks warrants another discussion, this article puts things into perspective from impending growth potential in one chart.

The chart below gives the banks savings account coverage across states in India and no state has 100% coverage with several states having significantly low bank savings account coverage.

While this is just one aspect of the banking sector, it does indicate that basic savings account (a starting point to access banking sector products) itself has huge growth potential and will ensure that the CASA ratio continues to improve translating into improvement in net interest income margin.

Long-Term investors can consider exposure to the two largest private sector banks in India and I believe that RBI is likely to cut rates in the coming policy meeting, which will serve as a near-term upside trigger for banking stocks.