Analysis of Banking Sector

A bank primarily deals with the credit facilities, investments, and cash exchange. The banking

sector is one of the most important drivers of most of the economies. It basically channels

funds to the borrowers with productive investments and helps in the progressive growth of the

nation. Banks earn money by the difference in the interest rate charged on a loan and the

interest rate given on an investment or a saving.

The Indian banking system has a total of 12 public sector banks (PSUs), 22 private sector banks,

46 foreign banks, 56 regional rural banks, 1458 urban cooperative banks and 96000 rural

cooperative banks.

The Reserve Bank of India is the central bank of India. It regulates as well as operates the

banking system in India. It administers and supervises the exchange control, banking

regulations and the government’s monetary policies. The guidelines by the RBI are followed by

all the banks in India.

Types of Banks in India

The different types of banks in India are as following:

➢ Central Bank: The Reserve Bank of India is the central bank of India. All the banks in

India follow the guidelines given by the RBI. It helps to maintain the liquidity in the

market and works to ensure proper functioning of the banks. It gives money to the

other banks at repo rate and takes their money at reverse repo rate.

➢ Commercial Banks: Commercial banks are formed to accept deposits and give loans to

those who are in need it, be it public, corporate and government. Commercial banks are

further divided into-

Public Sector Banks- These banks are the nationalized banks, and they account for

more than 75% of the total banking business in India. There are 12 Public Sector

Banks in the country, some of these are Bank of Maharashtra, Bank of Baroda,

Canara Bank, Bank of India.

Private Sector Banks- These are the banks in which stake or equity is held by private

shareholders. There are 22 private sector banks in India, some of these are- Axis

Bank, Bandhan Bank, City Union Bank, IndusInd Bank

Foreign Banks- A foreign bank is a bank that has its headquarters in a foreign

country, but it operates in India as a private entity. There are 46 foreign banks active

in India presently.

Regional Rural Banks- These banks are established to help the weaker sections of the

society like the marginal farmers, agricultural laborers, and small enterprises. Mainly

operated at regional levels.

Co-operative Banks: These banks are registered under the Cooperative Societies Act,

1912. These banks are run by an elected managing committee. These banks basically

work on no-profit and no-loss principle. They mainly provide their services to the

entrepreneurs, small businesses and industries and finance agricultural-based activities

like hatcheries, livestock, and farming.

Small Finance Banks: These banks are licensed under the Section 22 of the Banking

Regulation Act, 1949. These banks aim to provide their services to those who are left by

the other banks. They mainly provide their financial services to micro industries, small

and marginal farmers. Some of these banks are- Ujjivan Small Finance Bank Ltd., North

East Small Finance Bank Ltd., Jana Small Finance Bank Ltd.

Payment Banks: These banks are allowed to accept a restricted deposits and this

amount is currently Rs 1 lakh/customer. They also offer some services like ATM cards,

Debit cards, mobile banking, etc.


During the FY16-FY20, the bank credit has seen an increase at a CAGR of 3.57 percentage and

reached US$ 1698.97 billion, and the deposits also increased at a CAGR of 13.93 percentage

and reached US$ 1.93 trillion by FY20.

As per the RBI on Jun 25, 2021, the bank credit reached to Rs. 108.41 trillion and the bank

deposits reached to 152.98 trillion.

The total number of ATMs in India had reached 209,282 in November 2020. For the FY20, the

assets of the public sector banks had reached Rs. 107.83 lakh crore.

As on Jun 23, 2021, the accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY)

reached 42.55 crore and the deposits in the same totaled to an amount more than Rs. 1.44 lakh


The Non-Performing Assets (NPAs) of commercial banks witnessed the recovery of Rs. 400,000

crores in the last four years. The Government of India had planned to inject an amount of Rs.

42,000 crores in the public sector banks by the March.

On April 16,2021, India’s foreign exchange reserves had reached to US$ 582.41 billion, as stated

by the RBI.


The demand for the banks and its services is going to increase in the future.

▪ Increase in the working population in the country and the growing disposable income will

increase the demand for the banking and other related services.

▪ Mobile phones, internet banking and the extension of facilities at ATMs will increase the

operational efficiency.

▪ Innovative banking models like payment banks and small finance banks will help in

restructuring the domestic banking industry.

▪ The Payment Systems Vision 2021 document of the RBI predicts the number of digital

transactions to increase by more than four times to 8,707 crores in December 2021.

▪ The RBI’s permission to retail investors to access the government securities also known as

G-sec will work as a support.

Top 3 Bank Stocks

The top three banking stocks as on Oct 7, 2021, are as listed below:

Bank Name

Market CAP (in Rs. Cr)

ROA 12M (%)

PE ratio

Industry PE ratio

​​Kotak Bank





Bandhan Bank