Despite certain challenges, particularly in the unsecured retail and microfinance institutions (MFIs) sector, the overall outlook for the sector remains positive, driven by strong fundamentals and operating efficiencies.
Expected credit growth for FY25 is ~11%, expected to improve to ~12.5% for FY26, demonstrating the sector’s ability to sustain demand across key areas.
In the deposit sector, we are maintaining a solid growth rate of 11.5% as of December 2024, thanks to intensifying competition among banks and an active strategy to strengthen our funding base.
CASA sign-ups are challenging as depositors are locked into higher term deposit rates, but banks are successfully navigating these pressures.
Public sector banks (PSBs) continue to shine, with their performance expected to grow 36.3% year-on-year in the third quarter of FY25. Strong resilience, credit cost control and well-managed operating expenses are contributing to this strong performance. Private sector players including ICICI Bank, HDFC Bank and Federal Bank are maintaining healthy net interest income (NII) and boosting growth. Resilience and ability to adapt to market conditions. Despite pressures in the unsecured retail and MFI sectors, asset quality remains broadly stable with controlled declines. Public sector banks demonstrate strength in managing credit costs and collections, while private banks continue to improve operational efficiency.
Industry-wide pre-provision operating profit (PPoP) in the third quarter of fiscal 2025 is expected to increase 13.2% year-over-year, signaling a solid performance trajectory.
Technological advancements are also creating opportunities as digital initiatives gain momentum.
Fintech companies like Paytm are making significant progress and the latter is expected to achieve adjusted EBITDA breakeven by the fourth quarter of fiscal 2025, further demonstrating the adaptability and innovative potential of the sector.
As the Indian economy develops, the banking sector remains a pillar of stability and growth. Large private and PSU banks are particularly well positioned to weather the current cycle effectively.
With strong credit and deposit growth, stable asset quality, and technological advancements, the sector is poised to maintain momentum and continue to contribute to a resilient and progressive financial ecosystem.
ICICI Bank: Buy| Target Rs 1,550| LTP Rs 1,290| Upside potential 20%
ICICIBC is poised to deliver outstanding performance with healthy loan growth, strong asset quality, and industry-leading returns.
The bank’s operating leverage has emerged as a key driver of earnings growth, with robust deposit inflows and favorable CD ratios (one of the lowest among large private banks). ICICIBC is well positioned for profitable growth.
The asset quality outlook remains steady, backed by strong underwriting criteria, strong PCR and high emergency buffers on loans of up to 1%.
We estimate ICICIBC will achieve a CAGR of 15%/12% in PPoP/PAT over FY25-27E, resulting in RoA/RoE of 2.1%/16.7% in FY27.
SBI: Buy| Target Rs 1,000| LTP Rs 801| Upside potential 24%
SBI plans to strengthen its domestic and global outreach through robust growth initiatives by opening 500 new branches in FY25 and committing $1.5 billion to its international operations.
The credit growth rate is expected to be 14-15% and the deposit growth rate is expected to exceed 10%. This is possible through intensive deposit mobilization, including a focus on SA growth.
SBI maintains strong guidance including 1% RoA, 0.5% credit cost and containment of slippage, highlighting strong risk management and growth potential beyond FY25.
(The author is Head of Wealth Management Research at Motilal Oswal Financial Services Ltd)
(disclaimer: Recommendations, suggestions, views, and opinions provided by experts are their own. It does not represent the views of The Economic Times.)
