India's banks seeing strongest profits, balance sheets in a decade: CLSA

India's banks are on a solid turf after a decade of indecisiveness, with balance sheets that are strongest in more than 10 years and profits that have quadrupled over the decade, according to a new report by the capital markets and investment group, CLSA.

The report added Return On Equity (ROE) of the Indian banking sector is currently the highest, at 15 per cent, since the fiscal year 2010-’11, or FY11. Profit After Tax (PAT) for the banking sector, too, has quadrupled over the past 10 years.

“We believe Indian banks are well placed after a rollercoaster decade. Balance sheets are the strongest they have been in over a decade and profits have rebounded sharply (quadrupling in 10 years),” CLSA said in a report.

Loan growth in India’s banking sector was up from its average of 10 per cent over the past decade to 15 per cent in the last couple of years. The net Non Performing Loan (NPL) of the Indian banking sector, on the other hand, has dropped to its lowest in a decade owing to a bolstered capital position, improved asset quality and stronger provision buffers.

The CLSA report expects unsecured loan growth to somewhat normalise, and overall loan growth to be in the region of 14 to 15 per cent over the next two years.

“PSU (Public Sector Undertakings) Banks have re-rated sharply from a low base, while private sector banks have been laggards. We expect the underperformance of the latter to reverse,” the report stated.

"We expect private sector banks to continue gaining market share. However, FY25 loan growth across our coverage banks is likely to be divergent due to idiosyncratic issues,” the report said.

The CLSA report is of the opinion that private sector banks should now give better returns, given a good business outlook and inexpensive valuations. A sharp repo rate cut is what can be considered as a significant short-term risk.