ICICI Bank, SBI among the top picks that can return more than 20% in 2025

The Indian banking sector continues to demonstrate resilience and adaptability by navigating the dynamic economic environment with continued growth in credit, deposits and profitability.

Despite certain challenges, particularly in the underserved retail and microfinance institution (MFI) segments, the overall outlook for the sector remains positive, underpinned by strong fundamentals and operational efficiencies.

Estimated credit growth for FY25 is ~11%, with an expected improvement to ~12.5% ​​in FY26, indicating the sector’s ability to sustain demand in key sectors.

On the deposit front, growth remains strong at 11.5% through December 2024, supported by intense competition among banks and proactive strategies to increase the funding base.

While CASA enrichment faces challenges due to depositors locking in high term deposit rates, banks are successfully navigating these pressures.

Public sector banks (PSBs) continue to shine, with growth expected at 36.3% YoY in 3QFY25. Strong recovery, controlled credit costs and well-managed operating costs are contributing to this strong performance.

Private sector players including ICICI Bank, HDFC Bank and Federal Bank are maintaining healthy net interest income (NII) and driving growth, indicating their resilience and ability to adapt to market conditions.

Despite pressures in the unsecured retail and MFI segments, asset quality remains largely stable, with slippage under control. Public sector banks show strength in managing credit costs and collections, while private banks continue to improve operational efficiency.

Pre-provision operating profit (PPoP) across the sector is estimated to grow at 13.2% YoY in 3QFY25, indicating a solid performance trajectory.

Technological advances are also creating opportunities, with digital initiatives gaining momentum.

Fintech companies such as Paytm are making significant progress, with the latter expected to achieve adjusted EBITDA breakeven by 4QFY25, further demonstrating the sector’s adaptability and innovative potential.

As the Indian economy develops, the banking sector remains a pillar of stability and growth. Large private and PSU banks are particularly well positioned to effectively navigate the current cycle.

With strong credit and deposit growth, stable asset quality and advancements in technology, the sector is poised to maintain its momentum and continue to contribute to a resilient and progressive financial ecosystem.

ICICI Bank: Buy | Target Rs. 1,550| LTP Rs 1,290| 20% up

ICICIBC is poised for superior performance, driven by healthy loan growth, strong asset quality and industry-leading return ratios.

With the bank’s operating leverage strong deposit flow and favorable CD ratio – the lowest among major private banks – ICICIBC is well positioned for profitable growth.

Its asset quality outlook remains stable, supported by strong underwriting standards, strong PCR and a high contingency buffer of ~1% loans.

We forecast ICICIBC to achieve a CAGR of 15%/12% in PPoP/PAT in FY25-27E, leading to a RoA/RoE of 2.1%/16.7% in FY27.

SBI: Buy | Target Rs. 1,000| LTP Rs 801 | 24% up

SBI plans to open 500 new branches in FY25 and deploy $1.5 billion in international operations, increasing domestic and global outreach with robust growth initiatives.

Credit growth is expected at 14-15%, while deposit growth is expected to exceed 10%, driven by focused deposit dynamics, emphasizing SA growth.

SBI maintains strong guidance with RoA at 1%, credit cost at 0.5% and slippage, highlighting strong risk management and growth potential in FY25 and beyond.

(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd.)

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)