Singla said, “Our base case is 50 basis points rate hikes over the next 12 months, and we believe in a rising rate environment, the private sector banks, which have de-rated quite a bit, should be the key part of the call.”
According to JPMorgan, net interest income (NII) growth, which stood at around 5-6% last year, is expected to rise to about 13% this year and accelerate further to 15-16%.
He added, “This is one space where we believe the valuations, which are trading at below the long-term averages, and the NII is inflecting positive, that offers you the best risk-reward.”
Recent leadership transitions at private banks are viewed as a short-term blip rather than a structural concern. Historically, such changes have not led to a sustainable decline in growth trajectories, especially when asset quality remains benign and deposit franchises are bolstered by strong inflows.
Any disruption from external candidates is not expected to sustainably impact Financial Year 2028 (FY28) growth.
Foreign Currency Non-Resident (FCNR) deposits have delivered a massive positive surprise, reaching $127 billion. The figure easily surpassed street forecasts of $60 to $80 billion and JPMorgan‘s own higher-end expectation of $82 to $100 billion.
Deploying this liquidity will take a couple of quarters, potentially causing a near-term net interest margin (NIM) impact of 5 to 15 basis points due to negative carry or lower incremental spreads.
Investors should instead focus on NII and Pre-Provision Operating Profit (PPOP) growth, which could drive low single-digit earnings upgrades for FY28.
On the broader sector outlook, credit growth continues to outpace deposit growth, though the gap between the two narrowed from 500 basis points to around 120 basis points near June.
Deposit growth is not expected to overtake credit expansion in the near-to-medium term, even as base effects capture the trend heading into March 2027.
Full-year credit growth is estimated at a base of 14 to 15%, with upside risk stemming from the recent FCNR liquidity injection.
Asset quality remains robust despite macroeconomic headwinds such as higher oil prices and uneven monsoon rains. Delinquency trends are at a one-to-two-decade best across segments, including credit cards, personal loans, and microfinance.
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