Higher credit demand likely to lead to further upsides for banks

The RBI's increased risk weightage will hit growth in personal loans, credit cards and NBFCs

The National Stock Exchange Nifty Bank has hit an all-time high. Apart from the bullish sentiment caused by recent Assembly elections, there are signs of economic recovery and credit expansion.

Large private banks are trading at relatively low valuation premiums to public sector (PSU) banks compared to historical premium levels. PSU bank shares have outperformed the Nifty Bank, which is weighted in favour of large private banks. Earnings per share upgrades for PSUs have also been higher.

In the second quarter (Q2) of 2023-24 (FY24), most banks saw modest net interest income growth and margin pressures. Healthy fee income helped