Nifty Private Bank Index Fund: Growth backed by interesting return profile

Time of India

5 days ago

From the warmth of a grandmother's savings to the ambition behind a young entrepreneur's loan,
private sector banks in India
are at the heart of countless life-changing moments.
The
Nifty Private Bank Index Fund
offers a simple, structured, and low-cost way for investors to participate in this quiet yet powerful transformation.
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India's banking sector has long played a pivotal role in shaping the country's $4-trillion economy. From facilitating credit to expanding access for the underserved, it serves as the lifeblood of
financial inclusion
and economic momentum.
The Reserve Bank of India's recent liquidity measures are expected to unlock Rs 2.9 lakh crore (about $35 billion), further propelling
credit growth
.
Private sector banks are not just participants in India's growth story—they are clear outperformers.
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While they account for 28% of the Nifty 50's index weight, they contribute a larger 37% share of its profits. This reflects their superior efficiency, stronger balance sheets, and relentless focus on customers.
Performance behind the scenes
The numbers speak for themselves.
Net Interest Income
(NII) for
private banks
has seen a staggering rise over the past two decades. They grew steadily from less than Rs 25,000 crore in FY05 to over Rs 350,000 crore by FY25. This isn't just a reflection of loan books, it reflects growing trust, operational scale, and improved margins.
Net Interest Margins (NIMs), a critical efficiency marker, have also remained healthy, sustaining a level above 4% in recent years.
As depositors, borrowers, and investors vote with their feet, private banks have gained share in the loan market, from 13% in FY05 to 36% in FY25, and deposit market, where share expanded from 11% to 32% over the same period.
Low risk, strong core
While growth dazzles, risk matters. Private banks score well on this count too. Capital adequacy, a buffer that protects banks during downturns, is at an all-time high of 17.29% in FY25, comfortably above the RBI's regulatory threshold (11.7%).
Meanwhile, net Non-Performing Assets (NPAs), those numbers that reflect asset quality, are at a 10-year low of just 0.50% compared to post-Covid stressful times of 1.92%. In simple terms, these banks are not just growing, they're also doing so responsibly.
Decoding Nifty Private Bank index
The 10-stock
Nifty Private Bank Index
is a sectoral benchmark that reflects the performance of India's leading private banks. Constituents are selected from the Nifty 500 and ranked based on market capitalisation, with weight caps to avoid over-concentration. Each stock weight is capped at 23%, and the top three combined cannot exceed 62% at rebalancing done semi-annually.
The index includes household top private bank names. Together, they represent a mix of scale, innovation, and regional depth.
At a P/E of 17.6 and P/B of 2.4, the Nifty Private Bank index appears reasonably valued compared to Nifty 50, which trades at a P/E of 22.3 and P/B of 3.62. For long-term investors, that valuation gap could hint at potential upside.
Rebased to Rs 1,000 in April 2005, the Nifty Private Bank Index has surged to Rs 32,683 by June 2025, translating to a 20-year CAGR of over 18.6%, compared to 14.4% for Nifty 50. Over rolling 3- and 5-year periods too, the index has consistently delivered better returns, proving its strength across market cycles.
Not every year is a win, but in 6 out of the last 10 calendar years, the index has outperformed the broader market.
Why consider this investment
Let's say you want to invest in the power of private banking, but without picking individual stocks or tracking performance manually. An index fund tracking the Nifty Private Bank Index offers:
1) Broad exposure to leading private banks.
2) Low cost, since it passively mirrors the index.
3) Minimum investment starting at Rs 1,000, making it accessible to everyday investors.
4) Systematic investment options, helping build long-term wealth slowly but steadily.
You don't need a demat account. You don't need to monitor markets daily. What you need is a quiet commitment to your future, and to the silent powerhouses that keep India's economy ticking. Take part in the growth behind every swipe of a card, every EMI paid on time, and every SIP transaction made possible by private banks.
(The author is Principal - Investment Strategy, ICICI Prudential AMC)
(
Disclaimer
: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)