Indian Banks Poised for Steady Growth Amid Shifting Economic Landscape

Jefferies projects a 13% CAGR in loans for Indian banks from FY24 to FY27, driven by a favorable environment and interest rate cuts. Despite challenges in fee income, the banking sector presents a compelling investment opportunity with stable returns and attractive valuations, as per the report.

Indian banks are set for steady growth in the coming years, fueled by a 13% compound annual growth rate (CAGR) in loans, as forecasted in a recent Jefferies report. This optimistic outlook is supported by an environment conducive to growth and anticipated interest rate adjustments.

The report highlights expected rate cuts between 25 and 50 basis points, potentially affecting Net Interest Margins (NIMs). However, banks' Net Interest Income (NII) could see a 12% CAGR, bolstering overall earnings despite concerns over fee income risks due to a decline in high-interest unsecured loans.

Jefferies also notes that Indian banks' returns remain healthy, despite the Nifty Banks index lagging behind the broader NIFTY index. The report underscores attractive valuations in the sector, presenting a promising investment opportunity as the gap between banks' and the market's earnings growth narrows.

(With inputs from agencies.)