Despite certain challenges, particularly in the unsecured retail and microfinance institution (MFI) segments, the sector’s overall outlook remains positive, underpinned by strong fundamentals and operational efficiency.
Projected credit growth for FY25 is ~11%, with expectations of improvement to ~12.5% in FY26, showcasing the sector’s ability to sustain demand across key areas.
On the deposit front, growth remains robust at 11.5% as of December 2024, supported by heightened competition among banks and proactive strategies to enhance funding bases.
While CASA accretion faces challenges due to depositors locking in higher term deposit rates, banks are successfully navigating these pressures.
Public sector banks (PSBs) continue to shine, with earnings anticipated to grow 36.3% YoY in 3QFY25. Strong recoveries, controlled credit costs, and well-managed operating expenses are contributing to this robust performance.Private sector players, including ICICI Bank, HDFC Bank, and Federal Bank, are maintaining healthy net interest income (NII) and advances growth, reflecting their resilience and ability to adapt to market conditions.Despite pressures in unsecured retail and MFI segments, asset quality remains largely stable, with slippages under control. Public sector banks demonstrate strength in managing credit costs and recoveries, while private banks continue to enhance operational efficiency.
Pre-provision operating profit (PPoP) across the sector is projected to grow by 13.2% YoY in 3QFY25, signaling a solid performance trajectory.
Technological advancements are also creating opportunities, with digital initiatives gaining momentum.
Fintech companies such as Paytm are making significant progress, with the latter expected to achieve adjusted EBITDA breakeven by 4QFY25, further showcasing the sector’s adaptability and innovative potential.
As the Indian economy evolves, the banking sector remains a pillar of stability and growth. Large private and PSU banks are particularly well-positioned to navigate the current cycle effectively.
With strong credit and deposit growth, stable asset quality, and advancements in technology, the sector is poised to sustain its momentum and continue contributing to a resilient and progressive financial ecosystem.
ICICI Bank: Buy| Target Rs 1,550| LTP Rs 1,290| Upside 20%
ICICIBC is poised for superior performance, driven by healthy loan growth, strong asset quality, and industry-leading return ratios.
The bank’s operating leverage is emerging as a key driver of earnings growth, with robust deposit inflows and a favorable CD ratio—the lowest among large private banks—ICICIBC is well-positioned for profitable growth.
Its asset quality outlook remains steady, supported by robust underwriting standards, strong PCR, and a high contingency buffer of ~1% of loans.
We estimate ICICIBC to achieve a CAGR of 15%/12% in PPoP/PAT over FY25-27E, leading to RoA/RoE of 2.1%/16.7% in FY27.
SBI: Buy| Target Rs 1,000| LTP Rs 801| Upside 24%
SBI plans to open 500 new branches in FY25 and deploy $1.5 billion in international operations, enhancing domestic & global outreach with robust growth initiatives.
Credit growth is anticipated at 14-15%, while deposit growth is expected to surpass 10%, driven by focused deposit mobilization, with emphasis shifting to SA growth.
SBI maintains robust guidance with RoA at 1%, credit costs at 0.5%, and contained slippages, highlighting strong risk management and growth potential for FY25 and beyond.
(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
