The banking industry is one of the most rewarding sectors to invest in. The sector has majorly given a double-digit return over the past 10 years. The banking industry could be a suitable way of investing if you are looking forward to investing in stable and rewarding returns.
Over the years, India's banking sector has undergone a lot of changes. Public sector banks used to dominate this market, but now private sector banks are able to enter and compete with them. The Indian banking industry has been expanding quickly. In actuality, it has experienced the world's fastest growth.
Here we explain the reasons to invest in the banking sector:
Heavy demand
Banks play an important role in fulfilling the demand for money from the side of their customers. As we can see how BNPL and easy credit facilities are dominating the sector. India’s standard of living is rising and FinTech is growing towards ₹6.2 trillion (US$ 83.48 billion) by 2025.
Such growth in the demand side of the banking sector is increased due to the rapid adoption of building a startup and easy credit availability. The growing population of the country and the increase in disposable income also played an important role in the banking sector's rally.
Economic growth
The economic growth of a country directly contributes to the growth of the banking sector. Banks have a significant influence on the economy as banks are responsible for the money management of the country. When talking about the Nifty Bank Index, the banking sector is the primary recipient of benefits from all the economic sectors, which is the major reason why the Index has captured the GDP growth of the country.
Return potential
It is quite obvious that banking sector investment is majorly based on its asset quality. By looking at the long-term data, banks tend to improve their asset quality by reducing the gross non-performing assets (GNPA) ratio from 7.4% in March 2021 to a six-year low of 5.9 per cent in March 2022.
Digital banking
Innovation is the most essential part of an industry which positively affects its growth. The banking sector’s most smart innovation is digital banking services. Now, India has become a leading country to introduce UPI, which is widely helping the banking sector in their return growth.
Long term outperformance
Because of the above-mentioned factors, it is quite revealing that the banking sector has a significant potential to grow investors’ money if they have invested for a longer period of time. If you are looking forward to creating wealth by diversifying your portfolio in the banking sector.
You can invest in the banking sector in two ways, one is by selecting one or more stocks and by doing your own research if you are well versed in selecting stocks through fundamental analysis of the company. And, you can also invest through index funds. If you are new to the industry and do not have much experience and knowledge about analysis, index funds would be more suitable for you.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
