CLSA, in its latest report on Indian financials, highlighted critical observations and preferences for 2025-2026, focusing on credit growth, risks, and key banks’ performance. Here’s an overview:
Key Highlights:
- 2025: A Year of Two Halves for Banks:
- First Half: Elevated credit costs due to unsecured lending.
- Second Half: Expected normalization from tightened underwriting practices.
- Microfinance Sector:
- Anticipates pain but of shorter duration compared to past crises like demonetization or COVID.
- Credit Growth Expectations:
- Credit growth to pick up from 10-11% in FY25 to 12-13% in FY26.
- Repo Rate Cuts by RBI:
- Likely in February or April, potentially compressing NIM temporarily.
- Regulatory Developments:
- Proposed Liquidity Coverage Ratio (LCR) and project funding guidelines, along with Expected Credit Loss (ECL) framework, remain areas to watch.
- Preferred Banks:
- ICICI Bank: Valued as a stable compounder. CLSA maintains an Overweight rating with a target price of ₹1,600.
- Bajaj Finance: Seen as a stable player in its segment.
- IndusInd Bank: Highlighted as a high-beta player.
- HDFC Bank: CLSA maintains a Hold rating with a target price of ₹1,785.
CLSA’s Outlook on NIM and Margins:
- The firm expects operating margins to stabilize, with compressed revenue yields offset by improved operating leverage.
With a favorable view on ICICI Bank, Bajaj Finance, and IndusInd Bank, CLSA’s report reflects optimism in the sector’s ability to adapt to upcoming challenges while maintaining stable growth prospects. However, microfinance and unsecured loans remain sectors to monitor closely in the near term.
