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Those who are firm believers in the Indian growth story and want to bet on this rapidly growing economy cannot ignore the banking space. Credit lending is the backbone of consistent economy-wide expansion and therefore including some of the fundamentally sound banks in a long-term portfolio won’t be a bad idea.
If these banks also pay a consistent dividend year after year, then that would also benefit in lowering their acquisition cost over the years. In that vein, here are 3 high-quality banking institutions that are currently trading at the highest dividend yield.
Karnataka Bank Limited
Karnataka Bank Ltd. (NS:) is a small-cap private sector lender, having a market capitalization of INR 4,578 crores. It is currently undergoing an accelerated journey to become a highly digitally-focused bank that has future-ready operations and can outpace market demands. The balance sheet size of the bank jumped 9.69% YoY to INR 97,964 crores in Q2 FY23, while loan advances grew by 10.18% in the same period.
Because of the small size of the bank, there is a huge potential for it to grow at a higher rate than its larger peers over the coming years. Despite delivering a triple-digit return of 125% in the last one year, the bank is still available at a P/E ratio of 9.01, while the dividend yield stands at 2.72%.
Union Bank of India Limited
The second-highest dividend-paying bank is from the large-cap space, Union Bank of India Ltd (NS:) with a market capitalization of INR 53,618 crores. The bank’s recent Q2 FY23 performance showed why it is a portfolio stock as gross advances rose 21.92% YoY. Personal loans jumped 61.37% and loans surged 30.38% in the same period.
In the first two quarters of FY23, the bank has already clocked over 64% of the FY22 net income, at INR 3,395.53 crores. On the valuation front, it trades at a P/E ratio of 10.18 and a dividend yield of 2.42%.
Indian Bank Limited
The last name is from the midcap space, Indian Bank (NS:) with a market capitalization of INR 35,856 crores. It is rapidly moving towards digitization, launching 12 digital offerings in the last six months including KCC renewal, loan against deposits, etc. In fact, the bank disbursed INR 450 crores of loans in Q2 FY23, with instant loans getting disbursed in as low as 5 minutes!
This strong focus on digitization would allow the bank to lure young and tech-savvy customers. With a P/E ratio of a mere 8.66 and a dividend yield of 2.26%, Indian Bank is a strong candidate in the banking sector for a dividend portfolio.
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