Themes for 2025_ Year of Easing

Summary of Indian Banks Research Call Industry Overview - The focus is on the Indian banking sector, particularly the outlook for 2025, which is anticipated to be a Year of Easing for Indian Banks [2][20]. Key Themes and Insights 1. Loan and Deposit Growth: - Loan growth is expected to slow to 11-13%, leading to some cuts in EPS forecasts [2][3]. - Deposit growth has moderated to 11%, aligning with credit growth [3][30]. - The gap between loan growth (16%) and deposit growth (13%) has narrowed, addressing RBI concerns [2][4]. 2. Regulatory Environment: - RBI may implement a 50bps cut in policy rates in the first half of 2025, which could support growth and investments [4][38]. - The easing of liquidity stance and CRR by 50bps is expected to have a short-term drag on NIMs [4][42]. 3. Asset Quality: - Asset quality pressure is anticipated to ease in FY26, particularly for larger banks focusing on upper-tier clients [5][30]. - Unsecured retail loans are expected to see reduced pressure as provisions are taken upfront and disbursals slow down [5][44]. 4. Operational Efficiency: - Banks are controlling operational expenses by moderating branch and staff expansion, which is expected to continue into FY26 [6][30]. 5. Capital Needs: - With healthy ROEs and slower growth, banks have limited capital needs, although some PSU banks may require additional capital [7][30]. 6. Valuation and Investment Recommendations: - Valuations are considered attractive, with a narrowing earnings growth gap between banks and the market [8][20]. - Preferred banks include ICICI, Axis, HDFC Bank, and SBI, with Kotak upgraded to Buy and BOB downgraded to Hold due to slower deposit growth [8][9]. Important Metrics - EPS Forecast Changes: - Axis Bank: Target price INR 1,430 (previously INR 1,500) [9]. - ICICI Bank: Target price INR 1,600 (previously INR 1,550) [9]. - HDFC Bank: Target price INR 2,120 (previously INR 2,020) [9]. - SBI: Target price INR 970 (previously INR 1,030) [9]. Additional Insights - Economic Indicators: - Real GDP growth slowed to 5% in Q2 FY25 compared to 8% in FY24, while inflation remains sticky around 5% [2][30]. - The banking sector is expected to see a convergence in loan and deposit growth, with a pick-up anticipated in FY26/27 [30][31]. - Market Performance: - Nifty-Banks index increased by 6% in 2024, slightly underperforming the Nifty index, which rose by 9% [8][20]. - Sectoral Performance: - The MFI segment continues to face stress, which may impact mid-sized banks' earnings [5][44]. This summary encapsulates the key points discussed in the research call regarding the Indian banking sector, highlighting the anticipated trends, regulatory changes, and investment recommendations for 2025.