Stick To The Shares Of Private Banks

The higher interest rates and slower GDP growth imply declining loan growth and rising NPAs in the banking system, most particularly in the cheap state-owned banks.

Current Indian gross NPAs are at 3.7% of total loans, but there are also another 4.6% of loans which are in the restructured category.

So despite the temptation to buy cheap banks on a contrarian basis,  stick with the expensive quality private sector banks geared to the consumer space, since it is far from evident that India has passed the worst.

It is also the case that the credit problems are primarily in the corporate and infrastructure related sectors.