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Private banks NIMs may expand the most as rate tightening begins

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Private banks NIMs may expand the most as rate tightening begins

The RBI is expected to go for another 50 basis points of rate hikes over the next two policy meetings, taking the terminal repo rate to 6 per cent, although persistent food and energy shocks could extend the hiking cycle beyond its current expectations.

Healthy balance sheets and tighter underwriting standards are expected to contain credit costs. Stronger corporate balance sheets should help banks absorb higher interest rates. Loan growth is expected to moderate as elevated credit demand normalises following the Middle East crisis. Fixed rate deposits and rising loan yields are expected to support NIM expansion at large private banks, with scope for earnings surprises.

Large private banks are best placed to benefit from net interest margin (NIM) expansion as the Reserve Bank of India begins a rate tightening cycle, with contained asset quality risks and healthy balance sheets supporting the potential for earnings surprises despite moderating loan growth. The RBI raised the repo rate by 25 basis points to 5.5 per cent and shifted its stance to calibrated tightening from neutral, signalling further policy tightening ahead. The RBI is expected to go for another 50 basis points of rate hikes over the next two policy meetings, taking the terminal repo rate to 6 per cent, although persistent food and energy shocks could extend the hiking cycle beyond its current expectations, according to a report by Kotak Institutional Equities. Advt

Underwriting discipline to contain credit risks The current tightening cycle poses limited risks to banks, given healthy balance sheets, tighter underwriting standards in recent years and stronger borrower fundamentals.


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