ICICI, Yes, Axis Bank, HDFC shares rise ahead of the RBI decision

Indian bank stocks drifted upwards even after the head of Axis Bank warned about the slowing economy. ICICI shares jumped to ₹883, the highest point since January 5. Axis Bank stock jumped to ₹864 while HDFC rose to the highest point since March 10. Even the embattled Yes Bank (NSE: YESBANK) share price drifted upwards.

India’s growth is slowing

Indian banks have faced major headwinds in 2023. The first major issue is the recent accusations about Adani Group, a conglomerate that owns power plants, ports, and consumer brands among others. In a scathing attack, New York’s Hindenberg Research accused the company of stock manipulation. 

Since then, the company has lost billions of dollars in value. This was a major issue because Adani owes billions of dollars, some to Indian banks. For example, Axis Bank has extended about 0.9% of its loans to Adani’s companies.

Indian bank stocks are also seeing headwinds of a slowing economy. After growing rapidly in 2022, there are concerns that the economy is losing its steam. In an interview with FT, the head of Axis Bank warned that the economy was indeed slowing. He said:

“Right now, the data seems to indicate that broadly things are ok, but not everything is ok. The private capital expenditure has picked up, but not enough. The government is still spending a lot of money . . . but will it lead to a general pickup in demand? I think we have to be watchful.”

On the positive side, India is still growing, helped by the rising foreign direct investments (FDI). The country has become an attractive venue for foreign companies, especially with many of them moving out of China. 

Also, Indian banks have been a bit immune from the collapse of Credit Suisse, Silicon Valley Bank, and Signature Bank. 

RBI interest rate decision ahead

The next key catalyst for Indian banks like Yes Bank, Axis Bank, HDFC, and ICICI will be the upcoming interest rate decisions by the Reserve Bank of India scheduled for Thursday this week. Analysts expect that the bank will hike interest rates by 0.25% to 6.75%.

Like other central banks, the RBI has been tightening in the past few months in a bid to fight soaring inflation. Recent data shows that inflation rose to 6.4% in February, which is higher than the bank’s tolerated level of between 4% and 6%. 

The RBI will likely hint that it will pause its rate hikes. Higher interest rates could lead to a further slowdown of the Indian economy, which will affect their profitability. These rates will, nonetheless, lead to higher net interest income.