Jefferies sees rate cuts in India in 2025; ups HDFC, ICICI Bk target price

Bank stocks today: Jefferies has retained its 'Buy' ratings on Axis Bank, ICICI Bank, HDFC Bank, and SBI, It has upgraded Kotak Bank and downgraded Bank of Baroda

Jefferies on India banks 2025: The year 2025 may be the year of monetary policy easing for India, believes global brokerage Jefferies, as the gap between loan and deposit growth seems to have narrowed.

 

Besides, slower pace of growth in unsecured loans, along with moderation in gross domestic product (GDP) growth, calls for rate cut cycle to begin, Jefferies said in its latest report.

 

Jefferies upgrades Kotak Bank, raises HDFC Bank target price

 

Factoring the developments, Jefferies has retained its ‘Buy’ ratings on Axis Bank (share price target cut to Rs 1,430 from Rs 1,500), ICICI Bank (target price up to Rs 1,600 from Rs 1,550), HDFC Bank (target price increased to Rs 2,120 from Rs 2,020), and IndusInd Bank (target price cut to Rs 1,200 from Rs 1,470). It has also retained its ‘Buy’ rating on State Bank of India (SBI) with a lower target price of Rs 970 from Rs 1,030.

 

 

Jefferies has upgraded Kotak Mahindra Bank from ‘Hold’ to ‘Buy’ with a new share price target of Rs 2,120 from Rs 2,080. Among public sector banks, Jefferies has downgraded Bank of Baroda to ‘Hold’ from ‘Buy’ with a lower price target of Rs 270 from Rs 310, and has cut share price targets of Punjab National Bank to Rs 125 from Rs 135.

Will RBI cut rates in 2025? Jefferies predicts this:

According to Jefferies, growth in unsecured loan disbursements was down to 15 per cent at the end of 2024, compared with 19 per cent at the end of March 2024.

 

Bank lending to non-bank finance companies (NBFCs) has also slowed to 6 per cent vs 15 per cent; bank loan and deposit growth seem aligned; and real GDP growth has slowed to 5 per cent in Q2FY25 from 8 per cent in FY24 despite inflation (CPI) being sticky around 5 per cent.

 

"We believe these developments may encourage the RBI to reconsider the tight stance on regulations," Jefferies said.

 

The brokerage factors-in a 50 basis points (bps) rate cuts in the first half of 2025 (H1CY25), and expects the stance to stabilise thereafter.

 

"Liquidity levels were kept tight for most of 2024. However, over the past few months the RBI has eased stance on liquidity moving from 'withdrawal' to 'neutral' and then cutting cash reserve ratio (CRR) by 50bps to pre-Covid level of 4 per cent of net demand and time liabilities (NDTL). Incremental momentum on regulations may be neutralish or supportive of growth and investments," Jefferies said.

 

Will interest rate cut by the RBI affect banks' NIMs?

According to Jefferies, a cut in policy rate and tighter liquidity coverage ratio (LCR) norm can be a short-term drag on NIMs. A 10bps lower NIM can impact earnings by 3-8 per cent; higher for PSU banks, it said.

 

That said, Jefferies forecasts easing pressure in unsecured retail loans in FY26 on the back of upfront provisions (done in Q2FY25) and slower disbursals. 

This, it added, could be a tailwind to earnings trends for banks. However, SME loans will be an area to watch, coupled with a pick-up in GDP growth.

 

"MFI segment may continue to see pressures and drag growth and margins for smaller banks," Jefferies cautioned.

 

Further, Jefferies anticipates banks to continue with opex controls in FY26 as they focus on productivity, potentially reverting to investments as credit costs and NIMs stabilise in H2FY26.