Sat Mar 22 21:26:59 UTC 2025: ## Investing in Smaller Indian Banks: A Risky Gamble
**Chennai, March 23, 2025** – A new analysis reveals that investing in smaller Indian private banks over the past decade has been a largely unsuccessful strategy, with a staggering 92% failure rate. While larger banks like HDFC and Kotak Mahindra have delivered impressive returns, smaller and mid-cap banks have significantly underperformed.
The article, published in *The Hindu Businessline*, highlights the recent 30% plummet in IndusInd Bank’s stock price as a prime example. Many smaller banks listed in the past decade, including IDFC First Bank, Bandhan Bank, and RBL Bank, as well as several small finance banks (SFBs), have mirrored this trend of disappointing returns despite showing business growth. Only four SFBs – AU SFB, CSB Bank, Equitas SFB, and Jana SFB – have yielded positive returns since their IPOs, with only AU SFB outperforming the index.
The author, Nishanth Gopalakrishnan, points out that the Nifty Bank index’s 10% compounded annual growth rate (CAGR) over the past decade is largely driven by the top five banks (HDFC Bank, SBI, ICICI Bank, Axis Bank, and Kotak Mahindra Bank), which account for over 86% of the index’s market capitalization. The remaining constituents contributed only 13.5%.
This mirrors a global trend. The recent US banking crisis saw smaller banks like Silicon Valley Bank fail, while larger institutions remained unscathed. Gopalakrishnan concludes that investors seeking long-term returns in the banking sector are better off investing in the Nifty Bank index itself rather than attempting to identify the next “HDFC Bank” among smaller, riskier options, echoing the advice of legendary investor John Bogle: “Don’t look for a needle in a haystack. Just buy the haystack.”
First Piper 