Banking Giants in Focus: What Drives India’s Banking Benchmarks?
India’s banking sector is a cornerstone of the country’s financial system and a predictor of the overall state of the economy. The performance of banking giants like SBI, HDFC Bank, ICICI, Axis, and Kotak not only makes headlines but also influences the key banking benchmarks of India, which have significant impacts on NIFTY Bank and market sentiment. In this blog, we will explore what drives India’s banking benchmarks.
Banking Giants and Their Role in Benchmarks
India’s banking benchmarks, especially the Nifty Bank and BANKEX, are dominated by a few large players. Banks like HDFC Bank, ICICI Bank, State Bank of India (SBI), Axis Bank, Punjab National Bank, and Kotak Mahindra Bank together account for the lion’s share of these index weights.
Because these indices are free float market cap weighted, the movements of the heavyweight banks directly influence these benchmarks. For example, a 2% movement in Axis Bank’s share price impacts the Nifty Bank much more than a similar movement in the price of a smaller bank stock.
What Is the Driving Force Behind India’s Banking Benchmarks?
Several factors are responsible for India’s Banking benchmarks. Some of those are:
Regulatory Policy and Monetary Flexibility
Banks’ performance is directly impacted by the RBI’s actions. Banking stocks and indices are directly impacted by policy rates, cash reserve ratios, and modifications to liquidity management.
For example, the repo rate moderation in early 2025 brought down lending costs, driving loan demand and spurring increases in value for leading players, including a positive trend in Axis Bank share price as well as that of other public and private banks, reflecting investor confidence in the bank’s asset quality and digital transformation.
Digital Transformation
The rapid digital adoption in India’s banking sector has emerged as a critical driver for banking benchmarks. From UPI-led payments growth to AI-driven lending and automation, all these new innovations are driving growth in the banking sector.
Large private banks like ICICI and HDFC have invested heavily in digital platforms, while SBI and Axis are expanding their mobile-first offerings and partnerships with fintechs. Consequently, positive developments in digital adoption often translate into strong movements in Nifty Bank and BANKEX.
Credit Growth and Sector Penetration
Over the past ten years, total domestic bank credit has increased at a CAGR of 10.8%, despite India having one of the lowest credit-to-GDP ratios in the world. Banks, which are the catalysts for advancements in retail, commerce, and infrastructure, stand to gain significantly from this underpenetration.
With an estimated 11% YoY credit growth in bank credit growth in FY25, it serves as a key lever for sectoral indices and gives both domestic and foreign investors confidence in India’s growth trajectory.
Asset Quality and NPA Trends
Banks’ market standing is still largely determined by their asset quality. In FY2025, gross non-performing assets (NPAs) for scheduled commercial banks reduced to 2.3%.
Once burdened by bad loans, public sector banks were able to reduce non-performing assets (NPAs) to 2.8% through strict provisioning and recoveries. Many stocks, such as PNB share price have benefited from that as investors anticipate stronger returns and reduced risk in PSU banking.
Summing it up
India’s banking benchmarks are driven by regulatory changes, strong credit growth, asset quality, and digital transformation. As the credit cycle evolves and the RBI adjusts its monetary stance, banking benchmarks will still remain in investors’ focus as they not only represent the pulse of Indian finance but also the strategic direction of the entire economy.
Staying aware of these factors is essential for investors to understand the risk, opportunity, and momentum in India’s thriving banking sector.
