Jefferies Picks ICICI Bank, SBI, and Axis Bank as Net Interest Margin Winners in RBI Tightening Cycle

• Jefferies expects ICICI Bank, SBI, and Axis Bank to benefit most from the RBI's rate hike through faster loan repricing relative to deposit cost increases.
• The brokerage believes faster asset repricing will drive net interest margin expansion for these three banks in coming quarters.
• Smaller private banks, NBFCs, and life insurance companies may face greater earnings pressure from the tightening environment.

The investment case for select Indian banks in a rate hike environment centres on net interest margin dynamics. Jefferies' analysis identifies ICICI Bank, State Bank of India, and Axis Bank as the primary beneficiaries of the RBI's 25-basis-point hike, based on the composition of their loan books and the speed at which their lending rates reset relative to deposit repricing. Banks with a higher proportion of floating-rate loans linked to external benchmarks benefit from near-instantaneous asset yield improvement when the RBI raises rates, while deposit costs typically adjust more gradually as existing fixed-rate deposits mature and are renewed at higher rates.

ICICI Bank and Axis Bank have both undertaken significant work to increase the share of repo-rate-linked loans in their retail and MSME portfolios, which positions them particularly well for the early phases of a tightening cycle. SBI, as India's largest bank by assets, benefits from a substantial CASA franchise that provides low-cost deposit funding—this structural advantage means that even as wholesale funding costs rise, SBI's overall cost of funds increases more slowly, protecting margin. The Jefferies analysis suggests that these three institutions should be the primary NIM expansion stories in upcoming earnings seasons, potentially driving earnings upgrades.

The counterpart to the NIM expansion thesis is asset quality risk. While rate hikes improve margins on performing loans, they also increase the credit risk on borrowers with floating-rate obligations—particularly SME and retail segments where leverage is elevated. Jefferies acknowledges this risk but considers it manageable given the current strong employment backdrop and the relatively modest magnitude of the initial 25bps hike. Smaller private sector banks and NBFCs, which rely more heavily on wholesale market funding and have less diversified asset books, face a more challenging NIM-to-credit-cost tradeoff. Life insurers are penalised through mark-to-market bond portfolio losses that flow through their solvency positions.

Source: Moneycontrol / ET Markets