Macquarie on banks: India banks’ loan growth may show a slight improvement in the financial year 2025-26 (FY26), compared with FY25, global brokerage Macquarie said in a recent note.
This, the brokerage said, would be driven by a pick-up in retail and SME loans.
"Due to the cash reserve ratio (CRR) cut, assuming a money multiplier of 5x (1/reserve ratio) - deposit growth should improve by around 200 basis points (to 13 per cent), thereby aiding credit growth," Macquarie said in its note titled 'India Financials FY26: A year of stability'.
It estimates loan growth to rise to 13-14 per cent from the current 11 per cent.
In the December 2024 monetary policy meeting, the Reserve Bank of India (RBI) cut the CRR – the amount that banks deposit with the RBI – by 50 bps to 4 per cent. The cut was to be implemented in two phases of 25 basis points each on December 14 and December 28. With this, the RBI aimed to infuse liquidity into the banking system, without cutting interest rates, to improve banks' lending capacity.
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Going ahead, Macquarie anticipates the RBI to undertake a ‘shallow’ rate cut cycle, with no more than 50-75bps of cuts.
"As a result, net interest margin (NIM) compression should be confined to just 10bps. Credit costs and opex ratios may remain stable in FY26," the brokerage said.
Macquarie raises share price target of SBI, Axis, HDFC, ICICI Bank:
Macquarie believes large private banks may deliver a 14-19 per cent core earnings per share (EPS) CAGR over FY25-FY27, with 16-17 per cent return on equity (RoE).
It considers the sectoral valuations attractive (at 9-13x FY27 core price-to-earnings (P/E) and 1.3-2.0x FY27 core price-to-book value (P/BV)).
Macquarie has raised Axis Bank share price target to Rs 1,440 from Rs 1,400, raising EPA estimate for FY25 to Rs 86.2 from Rs 86. It, however, has cut FY26 and FY27 EPS estimates by 1.7 per cent and 2.3 per cent as a decline in earnings, on account of lower margins, is offset by lower credit costs.
Meanwhile, Macquarie has raised HDFC Bank share price target to Rs 2,300 from Rs 1,900. EPS estimates for FY25, FY26, and FY27, however, have been cut by 2 per cent, 2.5 per cent, and 0.6 per cent, respectively, as the impact of decline in loan growth (given the consolidation strategy) and lower than expected margins majorly offset lower credit costs.
It has raised ICICI Bank share price target to Rs 1,670 from Rs 1,350; City Union Bank target price to Rs 220 from Rs 185; and Kotak Bank target price to Rs 2,200 from Rs 1,950. CHECK FULL LIST HERE
On the downside, it has cut Bandhan Bank share price target to Rs 220 from Rs 250, and IndusInd Bank share price target to Rs 1,210 from Rs 1,690.
As for public sector banks (PSBs), Macquarie believes the sector faces higher risk from the expected credit loss (ECL) norms, given the absence of contingent buffers.
"They have also been losing market share in deposits, which is a structural concern," Macquarie said.
Nonetheless, it has raised SBI share price target marginally to Rs 700 from Rs 690, and Bank of Baroda share price target to Rs 200 from Rs 190.
SBI's EPS estimates have been raised by 7.9 per cent for FY25, 1.8 per cent for FY26, and 6.3 per cent for FY27 as increase in earnings, driven by decline in opex , will likely partially offset higher credit costs. FY25 earnings increase also contains an element of higher treasury gains, it said.
Similarly, Bank of Baroda's EPS estimates have been raised by 25.8 per cent for FY25, 18.2 per cent for FY26, and 21.4 per cent for FY27.
Macquarie on NBFCs
Macquarie believes the boost to NBFCs' NIMs may be limited due to minimal rate cuts. Add to that, it sees lower loan growth for the sector over FY25-27, compared to the previous cycle, owing to slower growth in unsecured loans and RBI regulations.
Macquarie has increased share price targets of Shriram Finance, REC, and Power Finance, while reducing share price targets of Bajaj Finance, Cholamandalam Finance, LIC Housing Finance, M&M Financial Services, and Aditya Birla Capital. CHECK LIST HERE