JP Morgan On What’s Next After The Big Banking Rally

JP Morgan is looking at larger banks in both private and public sectors—especially those with adequate capital, deposit franchise and the organisational ability to lend.

“Banks with better deposit franchises would have the benefit of not only growing faster but also picking and choosing which segments to grow in,” Harsh Modi, Co-Head of Asia Financials Equity Research at JPMorgan, told BloombergQuint. “Generally benefits larger banks on both public and private sector.”

India’s banking index has seen a steep recovery this month after falling 1.8 percent in February. The Nifty Bank Index has risen 6.81 percent in March so far led by a 38 percent rise in Yes Bank Ltd., compared with a 4.69 percent rise in the benchmark Sensex. The Nifty Bank Index rose 6.5 percent this year compared with a 6.35 percent rise in 2018.

The PSU Bank Index has declined 1.6 percent in 2019 compared with a 16.55 percent fall last year.

India’s banking sector has been undergoing structural and regulatory changes over the last few years after it reported massive non-performing assets. That, coupled with management changes and corporate government issues, led to a drop in many banking stocks, especially those in the public sector.

These problems are starting to shift with the capital injections made by the Finance Ministry. An equivalent of $7 billion was injected into the banking system last month itself with around $4 billion going into public-sector banks under the prompt correction action framework, Modi said.

“That has helped and ultimately this should lead to much higher competitive intensity by the public sector banks in India in the course of next 12-18 months,” he said.

Modi said that it ultimately comes down to resolution capital versus growth capital. “Banks with better access to growth capital, either existing or in future, will be in a better position to grow in a more confident manner.”