Banks Sector Stocks

Shares of companies offering financial services like commercial banks, insurance companies, and investment banks are called bank sector stocks. These companies offer financial services like deposits, investments, and loans to customers. The banking sector in our nation includes private, public, as well as foreign banks. 

The banking sector in India has a major contribution toward the GDP and the overall Indian economy. The banking sector has adapted to the industrial changes well and has managed to provide value to investors. Therefore, investors have been dependent on banking stocks for long-term income and growth. 

The banking sector in the country has always been responsible for offering liquidity to businesses and individuals. Therefore, the performance of banking sector stocks is considerably influenced by the condition of the stock market and the overall economy. 

The Indian banking sector covers a vast population, with 22 private sector banks serving, 12 public sector banks, 44 foreign institutes, 43 regional rural banks, 1484 urban cooperative banks, and 96000 rural cooperative banks. This vast number of financial institutions in the country cater to multiple groups, the urban class, small and medium-size industries, large institutions, the agricultural sector, and the rural population. In terms of total assets, public sector banks stood at INR 107.83 lakh crore (US$ 1.52 trillion) in FY20. Meanwhile, total assets of the overall banking sector (including public, private sector, and foreign banks) increased to US$ 2.52 trillion in FY20.

Investors should understand the features and financial products when investing in any bank stocks. With rising income, enhanced banking facilities even in rural areas, and growing digitisation, the banking sector is poised for growth in the coming years. As of August 2021, the total number of ATMs in India reached 213,570. Meanwhile, cashless transactions are also on the rise, with the Unified Payments Interface (UPI) recording 3.65 billion transactions worth INR 6.54 trillion (US$ 87.11 billion) as of September 2021.

Have you ever looked at the bank sector share list and wondered why you should invest in these stocks? If so, determine a few advantages of investing in banking sector stocks:

Steady Dividends

Reputable banks are known for offering steady dividend income to shareholders. Therefore, people often consider banks as a regular source of income. The lending and investment activities of banks ensure that they have a predictable cash flow. Therefore, financial institutions manage to offer consistent dividend income to customers.

Defensive Nature

The primary reason why investors choose bank stocks in India is their defensive nature. During any economic crisis, banks are not safe from short-term volatility. But compared to other sectors, they can navigate through market fluctuations better. Therefore, the stable business model makes banking sector stocks a worthwhile investment. 

Long-Term Growth Potential

Banks can leverage the developments in their operational countries or regions for their growth. Moreover, they can extend their loan portfolios and offer more financial services to customers to generate higher profits. Therefore, smart investors are always looking for the best bank stocks to buy and generate long-term profits.  

Exposure to Different Industries and Businesses

Banks extend their services to individuals and companies in a plethora of industries. Therefore, investing in banking stocks can provide you exposure to various businesses and sectors. 
The performance of banking stocks won’t be influenced by just one industry or sector in particular. Therefore, exposure to different businesses and industries will help minimize investment risks.  

Like other stocks, shares in the banking sector also get influenced by different factors. Therefore, the top bank stocks today won’t be the same as tomorrow or yesterday. Learn about the top factors that have a large influence on banking sector stocks:

Credit Risk

Banks generate revenue by lending money to businesses and individuals. The quality of these loans has a huge impact on their profitability. Before building a banking sector stock portfolio, you need to consider the loan quality of the bank. You should give special attention to the non-performing loans and their underwriting practices. 

Regulatory and Compliance Risks

Banks are always under the scrutiny of various authorities, and they need to adhere to strict rules and regulations. The profitability in the banking sector fluctuates according to the regulations present in it. Therefore, you must be aware of the various regulatory risks while looking for ideal investment opportunities in a bank stock list. 

Interest Rate Risk

The profitability of a bank largely depends on its interest rates. They generate revenue by charging loan interest. Therefore, investors must consider the interest rates before buying bank sector stocks. 

Government Regulations

Government policies have a major influence on the banking sector stock prices. Capital requirements, monetary policies, tax laws, and various other factors can impact banking stocks. Therefore, always remain aware of the impact of government regulations and policies on banking stocks.    

Technological Disruptions

The banking sector in India is heavily dependent on technology. Technological advancements can have a major influence on bank share prices. Moreover, cybersecurity threats also influence the profitability of banks. Therefore, consider the technological capabilities and the method to deal with cybersecurity threats of a bank before investing in its shares. 

Industry Dynamics

The emergence of new competitors can influence the profitability and share price of banks. Therefore, keep track of a bank’s ability to adapt to the changing market dynamics before investing in its share. 

5paisa is your ultimate destination when you want to invest in banking stocks and diversify your portfolio. The steps to invest in bank sectors stocks using 5paisa are as follows:

• Install the 5paisa app and undergo the registration process.
• Add the required funds to your account.
• Hit the “Trade” option and choose “Equity.”
• Check out the banking stocks list NSE to make your pick.
• Once you find the stock, click on it and choose the “Buy” option. 
• Specify the number of units you desire to purchase.
• Review your order and complete the transaction. 
• The banking stocks will reflect in your Demat account once the transaction is complete.