The Indian financial sector is entering a phase of accelerated credit momentum, with Jefferies observing a notable pickup in growth across major institutions. Driven by a strong festive season and improving microfinance (MFI) collection efficiencies, sector-wide loan growth is increasingly aligning with the broader economic recovery. Jefferies remains bullish on players that are successfully expanding their Assets Under Management (AUM) and leveraging strategic transitions.
Jefferies on HDFC Bank: ‘Buy’
Jefferies identifies HDFC Bank Ltd. as its top pick within the Indian banking space, projecting a significant 24% potential upside with a target price of Rs 1,240. The bank is currently leading the industry’s credit acceleration, reporting a 12% year-on-year loan growth for the December quarter. This performance exceeded previous analyst estimates and suggests the institution is moving past the initial friction of its historic merger.
Jefferies utilises a Sum of the Parts (SOTP) model to reach its valuation, pricing the core banking operations at 2.5x Dec-27 adjusted book value. A key component of this valuation includes the significant contribution from group companies, most notably HDB Financial Services, alongside HDFC Life and HDFC AMC.
While the bank faces a higher reliance on non-retail funding that exposes it to interest rate volatility, Jefferies believes its scale and improving liquidity conditions position it as a primary beneficiary of the system’s credit recovery.
Jefferies on Bandhan Bank: ‘Buy’
Jefferies maintains a strong ‘buy’ rating for Bandhan Bank, setting a target price of Rs 200 which implies a massive 38% upside from current levels. The bank’s Q3FY26 performance was characterised by a 10% year-on-year growth in loans, but a notable 4.5% decline in CASA deposits, which saw the Current Account Savings Account (CASA) ratio soften to 27.26% from 31.73% a year earlier. This drop was primarily driven by a “deliberate move” in the funding profile where customers migrated from low-interest savings accounts into higher-yielding retail term deposits.
These deposits surged 35.8% as the bank prioritized stable, long-term retail funding over volatile bulk deposits. Despite this compression in low-cost deposits, Jefferies is encouraged by the operational recovery in the Microfinance Institution (MFI) segment, where pan-bank collection efficiency climbed to 98.1% in December, signaling that the bank’s asset quality is finally stabilizing.
Jefferies on AU Small Finance Bank: ‘Buy’
Jefferies has a ‘Buy’ rating on Au Small Finance Bank with a price target of Rs 940, citing its industry-leading 19% year-on-year AUM growth during the December quarter. This growth was primarily fueled by a surge in festive-season vehicle financing (Wheels) and a 20% expansion in the mortgage portfolio, which helped offset a strategic 23% de-growth in riskier unsecured business segments.
Jefferies observes that AU Bank is at a pivotal “once-in-a-lifetime” juncture as it transitions into a universal banking platform, a move expected to significantly lower long-term funding costs and boost fee-based income. While the current market price of Rs 999.05 sits above the Jefferies target, the analysts argue that the bank’s ability to maintain a 22% CAGR in credit growth through FY28 justifies a premium valuation of 2.6x Dec-27 adjusted price-to-book.
Jefferies on loan growth comparison
A comparison of loan growth trends across these three institutions reveals a widening divergence in strategy and momentum. AU Small Finance Bank leads the pack with a 19% AUM growth, demonstrating the high-velocity expansion typical of smaller players aggressive in the vehicle and MSME segments.
HDFC Bank follows with a steady 12% growth, exceeding consensus expectations and showing a “system-plus” performance as it prioritises liquidity management over raw volume following its merger. Bandhan Bank trails with 10% growth, as it remains in a recovery phase focused more on cleaning up its microfinance book and improving collection efficiency than on rapid balance sheet expansion.
Conclusion
In summary, the Jefferies analysis suggests that the Indian banking sector is entering a phase of renewed growth momentum. While individual institutions face unique challenges, such as HDFC Bank managing its post-merger cost of funding, Bandhan Bank focusing on MFI recovery, and AU Small Finance Bank handling its universal banking transition, the overarching theme is one of operational improvement and robust credit demand. Jefferies’ outlook remains bullish on these players as they capitalise on festive-led growth and enhanced collection efficiencies to drive future profitability.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.