HSBC believes that Indian banks could witness faster-than-expected normalisation in Net Interest Margins (NIMs) following the Reserve Bank of India’s upfront repo rate cut and anticipated reductions in deposit rates.
According to the brokerage, high deposit beta — the tendency of deposit rates to follow policy rates — will support meaningful easing in cost of funds for lenders. HSBC estimates that deposit rate cuts could lower costs by 24–60 basis points for private sector banks and by 11–24 basis points for public sector banks over the next 12 months.
In terms of beneficiaries, HSBC believes smaller and mid-sized banks will gain the most, followed by large private banks, with PSU banks benefitting at the margin.
This outlook comes at a time when banks have started to reprice deposits downward, and expectations of further rate transmission are increasing. HSBC suggests that this could support margin stability even in a softening interest rate environment.
Disclaimer: The views and target prices mentioned are as stated by HSBC and do not represent the opinions or recommendations of this publication. Investors are advised to consult their financial advisors before making any investment decisions.
