The Reserve Bank of India (RBI) has decided not to change interest rates, keeping them steady at 5.5%. The RBI uses the repo rate (the rate at which banks borrow from the RBI) to control inflation and stimulate or slow down the economy. A pause in rate hikes is generally good for banks, especially when inflation is under control and economic growth is stable. This decision is important because it affects how much it costs banks to borrow money.
Jefferies, a global investment bank and financial services firm recommends investing in big private banks like HDFC Bank, ICICI Bank, and Axis Bank, and also in SBI, a leading government-owned bank. Jefferies believes these banks are in a strong financial position, with enough capital and are well-prepared for upcoming changes in how bad loans are calculated (called the ECL transition).
Jefferies is supporting big private banks and State Bank of India (SBI) for several reasons:
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First they won’t face pressure to lower deposit rates (the interest they pay you for keeping money in the bank). This helps them maintain profits.
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They’re being allowed to lend more freely — like for acquisitions, IPOs, and loans backed by shares or debt.
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New rules are coming in 2027 (ECL regime), and these banks have enough capital to handle it.
Who might be hurt by this?
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Smaller banks and NBFCs (non-bank financial companies) could face challenges.
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Because interest rates didn’t drop, they can’t lower deposit rates to cut costs and improve profits.
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They also may not have enough capital to handle the upcoming ECL rules as smoothly as larger banks.
Changes Announced by RBI to Boost Lending
The RBI also announced a bunch of changes to make it easier for banks to lend money, especially to businesses and investors.
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Banks can now lend to companies for buying other companies (acquisitions).
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Limits on loans backed by debt or shares have been raised.
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IPO financing limits increased from ₹10 lakh to ₹25 lakh.
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RBI removed lending restrictions for large borrowers (over ₹100 billion in loans).
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Lowered risk weights (makes it easier and cheaper) for lending to strong infrastructure projects.
RBI’s took this decision to keep the economy stable, encourage banks to lend more and help big banks grow faster while smaller ones may struggle a bit.
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