Forget the Swiss Alps, Savour the Himalayas!

IT'S IRONICAL THAT the land the Basel — the fountainhead of global banking laws — saw the financial sector's worst nightmare come true. While the new Basel III norms espoused higher capital adequacy and reinforcing guardrails around funding stability, early this year the 167-year-old Credit Suisse fell to a shoddy asset-liability mismatch as interest rates began rising. The fire-sale — a deep 60% discount to its market value — saw the behemoth subsumed by rival UBS Group AG, Switzerland's largest banking group, for $3.25 billion.

The event, incidentally, came towards the close of March, which, back home, marks the culmination of a financial year for all things business, including banking. Even as the U.S. and Europe were battling the wildfires, India's banking landscape was scripting history. For the first time, the cumulative standalone profit of 12 listed public sector banks (excluding IDBI Bank) in India crossed ₹1 lakh crore mark in FY23 at ₹1.04 lakh crore, a dramatic turnaround from a record cumulative loss of ₹85,390 crore in FY18.

While Bank of Maharashtra (BoM) saw the biggest percentage jump (126%) in profit to ₹2,602 crore, State Bank of India (SBI) recorded absolute profit of ₹50,232 crore, an increase of 59% over the previous year. Keeping company were 30 private sector banks (including IDBI Bank and small finance banks) whose cumulative profits rose 32% year-on-year to ₹1.28 lakh crore. In effect, the combined profit of public and private sector banks stood at ₹2.33 lakh crore even as the banking index gained 9.31% in FY23 with the aggregate market cap of banks hitting ₹36.53 lakh crore, as of June 16.

Fortune India and Grant Thornton Bharat's second annual ranking of the country's best banks couldn't have asked for a better backdrop. The six-member jury comprising eminent policymakers, former central bank deputy governors and academia, nonetheless, got the pulse of India's banking narrative. The study panned 78 banks (barring rural and urban cooperative banks but including regional rural banks) across five distinct groupings with a standalone balance sheet size of over ₹10,000 crore to bring out the winners in each category based on the quantitative and qualitative parameters as deliberated upon by the jury. The power of the club can be gauged from the fact that these 42 banks had a cumulative asset size of ₹215.2 lakh crore and accounted for advances of ₹121.6 lakh crore in India, which is 99.6% of total credit outstanding of ₹122.08 lakh crore by all scheduled commercial banks as of March 2022.

When the big get bigger, they also try to get better. That's the story of Indian banking and, hence, there aren't major surprises in the names that dominate the winners in each of the groupings (See: A Cut Above the Rest).

In the large banks category, for the second year running, HDFC Bank has retained the top spot by holding on to the numero uno rank across all parameters, except for coming second to ICICI Bank in terms of investor perception. It would be interesting to see how the new merged entity will fare in the new fiscal as mortgage business becomes a big part of the consolidated advances book.

In the mid-sized bank category, Kotak Mahindra Bank has retained the numero uno position. Known for its conservatism, the strategy has worked well for Kotak Mahindra Bank over the years. In an interaction with Fortune India, the 64-year-old founder-CEO talks on why the bank will never chase growth at the cost of spread. "It's not about conservatism, but more about a very deep entrepreneurial view of risk and return. I believe that the future is about creating financial institutions that outlive you," says Kotak.

It is not surprising then that in terms of business growth, the bank ranks fourth, while IDFC Bank takes the No. 1 rank in the growth stakes. But in profitability, capital adequacy, market perception it ranks way above its peers.

Among public sector banks, the surprise candidate is Bank of Maharashtra. "Our plan is to cross ₹5 lakh crore mark in total business this year through organic means. But there will not be any compromise on quality of assets," says A.S. Rajeev, managing director and CEO.

Among the small-sized private sector banks, Fairfax-owned CSB Bank — formerly Catholic Syrian Bank — retains the top honours and a visible margin difference over the second-best, The Tamilnad Mercantile Bank, in its category. Change is not constant here. AU Small Finance Bank emerged winner in the small finance banks (SFBs) grouping with Equitas Small Finance Bank coming second.

Among foreign banks, Standard Chartered India has put its peers by the wayside with a phenomenal turnaround in its performance in FY22. CEO Zarin Daruwala believes the good times are just rolling in though FY23 has seen a bit of rough weather.

While banks have had a run thus far with bumper profits and record net interest margins, the next year could be better if all things remain the same. Whether we are in a Goldilocks moment or is it the silence before the storm will be clear in next year's rankings.