Financial services firm Nomura has updated its stance on Indian banks, anticipating impacts from potential interest rate cuts. The firm projects that larger private banks may face more significant effects from these changes.
According to Nomura, a possible 50 basis points cut in the repo rate could reduce Net Interest Margins (NIMs) by 15-20 basis points for most large private banks. The impact on Return on Assets (RoA) is expected to be less severe, estimated at 5-10 basis points for large banks.
Despite these projections, Nomura has maintained its top picks in the sector: KMB, ICICI Bank, SBI, and Federal Bank. The firm states it prefers not to alter its recommendations based solely on NIM implications.
Nomura has revised target prices for several banks while keeping “Buy” ratings:
- Axis Bank: Reduced to INR 1,370 from INR 1,435
- SBI: Lowered to INR 980 from INR 1,030
- Bank of Baroda: Decreased to INR 280 from INR 310
The analysis suggests that deposit growth and Current Account Savings Account (CASA) ratios could benefit from a potential easing cycle in interest rates.
Nomura’s report indicates a nuanced view of the banking sector, balancing potential challenges from rate cuts with opportunities in specific institutions.
