Banking & Finance sector: Financials Rule BT500 List

Rs 5.8 lakh crore—that’s the combined profit of banks and financial services companies (including brokerages, asset management companies, and exchanges) in the BT500 list for FY25. No surprise then that the banking and financial services sector accounts for over 34% profit of India’s top 500 companies. That is emblematic of the scale and strength of India’s financial sector today. This year’s BT500 study—a departure from earlier editions, which were based on market capitalisation—reveals many such interesting facts. But first, what explains such a high share in BT500 profits?

The answer lies in India’s financial system being dominated by banks, which historically have been the sole mobilisers of household savings and providers of credit. India’s high growth and strong macros have boosted the sector’s performance over the years. The RBI, in a recent report, Trend and Progress of Banking in India 2023–24, highlighted some interesting facts: “Banks’ profitability improved for the sixth consecutive year in FY24, while their gross non-performing assets ratio reached its lowest level in 13 years, at 2.7%, as of end-March 2024.”

Other studies buttress the trend. Axis Securities, a subsidiary of Axis Bank Ltd, has done a study on rolling four-quarter profit for NSE 500, which crossed Rs 15 lakh crore for the first time in Q4FY25. The financial sector’s contribution has risen sharply, from 19% in Q2FY20 to over 37% in Q4FY25. “This has been driven by better asset quality and lower provisioning versus pre-Covid levels—a clear sign of a healthier banking system,” says Rajesh Palviya, SVP—Research, Axis Securities.

Let’s analyse some of the outliers in the list—the biggest gainers and losers.

JM Financial, a big player in investment banking and wealth management, saw profit skyrocket 2,705% to Rs 772 crore. Multi Commodity Exchange of India profits rose 574% to Rs 560 crore. Punjab National Bank, with a large base, saw its profits jump 109% to Rs 17,440 crore. Yes Bank, which is recovering from past troubles, reported a 90% increase in net profit to Rs 2,447 crore, driven by lower provisioning for bad loans, higher fee income, and improved asset quality.

In contrast, some players disappointed the market. IDFC First Bank’s net profit dropped 49% to Rs 1,490 crore, primarily due to elevated provisioning and slippages in the microfinance portfolio. Manappuram Finance reported a 45% decline to Rs 1,204 crore, while Ujjivan Small Finance Bank’s profits fell 43% to Rs 726 crore.

However, of late, banking stocks have been underperforming. The reason? FY25 has been a challenging year marked by multiple headwinds—slowing credit growth, continuing pressure on deposit mobilisation, margin compression, and higher credit costs in segments such as microfinance and unsecured loans. “These factors have contributed to the underperformance,” says Palviya of Axis Securities.

The NBFC Sector

Over the years, non-banking financial companies, or NBFCs, have grown significantly in scale and emerged stronger despite macro uncertainty, funding pressures, and asset quality challenges. Pinank Shah, CEO, Capital India Finance, says the sector is entering a more grounded, asset-backed growth phase, anchored by a decisive pivot to secured lending.

The NBFC sector is closely linked to banking, from where it gets the bulk of funding. With the RBI increasing rates, the sector’s funding cost is likely to go up. “The sector is likely to see a flurry of equity raising,” says an August note by Moody’s Rating.

Shalya Gupta, CEO, Credifin, says the RBI’s final co-lending framework, effective January 1, 2026, brings critical clarity for NBFCs. Under this, lenders must retain at least 10% of each loan, disclose roles transparently, and adopt borrower-level asset classification: meaning, a default flagged by one lender applies to the co-lenders too.

The Way Forward

Bank credit grew just 12% in FY25. “While it is slower than the 16.3% in FY24, it is higher than the average growth rate of 10.3% recorded in the ten-year period preceding FY25,” RBI Governor Sanjay Malhotra said recently. He also explained that while non-food bank credit during FY25 reduced by about Rs 3.4 lakh crore from Rs 21.4 lakh crore to almost Rs 18 lakh crore, the flow from non-bank sources more than made up for this dip.

Banks are also increasingly becoming retail oriented with corporate credit shifting to large well-run banks, especially PSBs. “We expect retail to outpace corporate credit growth in the coming years,” says Palviya.

Within retail, the banks are focusing on higher wallet share by way of fee income. Kalyan Brahmadevu, APART Research Associate at Savart, the wealth management firm’s proprietary AI engine for investment portfolios, says firms integrating human expertise with AI-powered advisory are able to tap higher-margin wealth management products instead of relying solely on transactional income.

Another important trend is private credit providers stepping in to serve mid-level corporates in various sectors. Globally, private credit expanded in a big way after the 2008 financial crisis when banks came under heavy regulations. “While in India, non-bank debt financing started to happen through the NBFC structure, post the IL&FS crisis and the Covid-19 pandemic, they withdrew from this segment. Private credit funds emerged as the dominant capital source,” says Nilesh Dhedhi, MD, Avendus Finance.

Vineet Sukumar, founder and MD of asset management company Vivriti Asset Management, says India’s case is more nuanced. “In India, tighter bank regulations and risk avoidance by banks in the last 15 years, along with NBFCs’ cautious stance on wholesale lending post the IL&FS crisis, have led to the blossoming of private credit,” he adds.

Another big threat to banks is migration of deposits to equity, mutual funds, and other investment avenues. “This is the first time investors are getting direct participation in a deal through private credit fund structure,” says Dhedhi.

While the banking and financial services sector stands out for its strong balance sheets, the current challenges on both the assets and liabilities side could be impacting market valuations. A clearer picture should emerge soon.