The Reserve Bank of India's decision to hold interest rates steady at 5.5% offers relief to private banks while its sweeping measures to ease lending restrictions will support credit growth, positioning three larger private banks and State Bank of India (SBI) as top picks, Jefferies said.
"We feel the steps and transition timelines offered are balanced enough to support credit growth. Private banks with higher capital adequacy and buffer provisions are better placed to transition to the ECL regime," Jefferies said. "We continue to prefer larger private banks in India, with HDFC Bank, Axis Bank, and ICICI Bank; among PSU banks, we like SBI."
The central bank on Friday maintained its neutral liquidity stance and kept the repo rate unchanged, providing breathing room for banks that have limited scope to reduce deposit rates further. The rate pause prevents potential margin compression that could have resulted from asymmetric rate movements.
"RBI's status quo on rates & liquidity stance provides some relief to private banks (as they now have limited room to cut deposit rates), but is a tad negative for NBFCs/ small-banks," the brokerage said.
The RBI announced multiple steps to improve credit flow in the economy, including allowing Indian banks to finance acquisitions by Indian corporates and removing the ceiling on lending against debt securities. The regulator also enhanced limits for lending against shares from Rs 20 lakh to Rs 1 crore and for IPO financing from Rs 10 lakh to Rs 25 lakh.
In a significant move, the RBI withdrew restrictions on banks' lending to large borrowers with credit limits exceeding Rs 100 billion and reduced risk weights on non-banking financial companies' loans to high-quality operational infrastructure projects.
"Among policy steps, the ECL transition will start from April 2027, and the impact of the one-time charge can be partly offset by the lower risk weight/ spread over 5 years. RBI also relaxed restrictions on bank loans that will aid credit growth," Jefferies noted.
The brokerage emphasized that the rate hold is slightly negative for smaller private banks and NBFCs, as it limits their ability to benefit from potential deposit rate cuts. However, larger banks with stronger capital buffers are better positioned to navigate the transition to the Expected Credit Loss regime while capitalizing on expanded lending opportunities.
"We feel the steps and transition timelines offered are balanced enough to support credit growth. Private banks with higher capital adequacy and buffer provisions are better placed to transition to the ECL regime," Jefferies said. "We continue to prefer larger private banks in India, with HDFC Bank, Axis Bank, and ICICI Bank; among PSU banks, we like SBI."
The central bank on Friday maintained its neutral liquidity stance and kept the repo rate unchanged, providing breathing room for banks that have limited scope to reduce deposit rates further. The rate pause prevents potential margin compression that could have resulted from asymmetric rate movements.
"RBI's status quo on rates & liquidity stance provides some relief to private banks (as they now have limited room to cut deposit rates), but is a tad negative for NBFCs/ small-banks," the brokerage said.
The RBI announced multiple steps to improve credit flow in the economy, including allowing Indian banks to finance acquisitions by Indian corporates and removing the ceiling on lending against debt securities. The regulator also enhanced limits for lending against shares from Rs 20 lakh to Rs 1 crore and for IPO financing from Rs 10 lakh to Rs 25 lakh.
In a significant move, the RBI withdrew restrictions on banks' lending to large borrowers with credit limits exceeding Rs 100 billion and reduced risk weights on non-banking financial companies' loans to high-quality operational infrastructure projects.
"Among policy steps, the ECL transition will start from April 2027, and the impact of the one-time charge can be partly offset by the lower risk weight/ spread over 5 years. RBI also relaxed restrictions on bank loans that will aid credit growth," Jefferies noted.
The brokerage emphasized that the rate hold is slightly negative for smaller private banks and NBFCs, as it limits their ability to benefit from potential deposit rate cuts. However, larger banks with stronger capital buffers are better positioned to navigate the transition to the Expected Credit Loss regime while capitalizing on expanded lending opportunities.
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