---
endpoint: analytics
pattern: 03 · House view · stance
status: done
latency_ms: 169715
conversation_id: d1fbfd95-c149-480a-ad45-538fb60e4277
citations: 0
created: 2026-05-31 17:03:39Z
---

# Where does CLSA sit on the India banks rerating debate?

# CLSA on the India banks rerating debate

**Bottom line — CLSA sits on the constructive side of the rerating debate, but selectively, not for the sector as a whole.** Their latest published position (note: corpus latest = 26 Jun 2025; "latest" below is relative to that vintage) is that the rerating case is strongest for **SBI** and the **large, asset‑quality‑led private banks (HDFCB, ICICIB)**, while CLSA is explicitly cooler on **Kotak, IndusInd, and SBI Cards**, and views the **PSU laggards (BOB, PNB)** as structurally NIM‑pressured. They are not arguing for an indiscriminate sector rerate driven by RBI cuts — in fact, their 19 May "CASA‑Repo affair" note pushes back against the consensus rerating shortcut that depends on rate cuts mechanically lifting CASA and NIMs [7].

---

## 1. The headline CLSA call: SBI is "Ripe for re-rating"

CLSA's clearest single statement on the debate is the title and thesis of their 26‑Jun‑2025 SBI note — *"State Bank of India — O‑PF (Ripe for re-rating)"* — making SBI the named flagship of their rerating thesis among large India banks.

The argument has four layers [1][3]:

- **Compounding story not in the price.** SBI is gaining market share for the fourth consecutive year, including *from some private banks*, with strong asset quality (gross slippage ratio actually *improved* in FY25 to **0.56%**, contrary to most peers).
- **FY26 noise, FY27 normalisation.** FY26 will be weak due to NIM compression, but the bank should deliver **~1% RoA and 14‑15% RoE in FY27**.
- **Cheap on the math.** Adjusted for subsidiaries, SBI trades at **~1.0x FY27 PB and ~7x FY27 PE**. Book value per share is up 18% over the past year while the stock is down ~6% [3].
- **Hidden optionality.** SOTP **excludes** stakes in Yes Bank (23.97%) and NSE (7.56%), worth ~**US$7bn / ~9% of market cap** [3], plus upside to PAT from higher‑than‑expected treasury gains as rates fall [9]. Lifetime‑high CET‑1 of **10.8%** with a possible **Rs250bn (~US$3bn) QIP** to close the Tier‑1 gap to peers [4].

Crucially, CLSA explicitly frames the rerating mechanism as a *de‑anchoring* trade, not a cyclical one [2]:

> "Prior to the start of the corporate credit crisis in 2015/16, SBI was trading at 1.5x PB with sub-1% RoA and 12-15% RoE. Post the crisis, there was a structural de-rating of sorts. Even though SBI is in a much better position today from a balance sheet and a P&L perspective, we believe investors are still anchored with recency bias. As the bank continues to deliver healthy performance, we believe the multiple could re-rate gradually." [2]

TP **Rs1,050**, SOTP‑based, implies **1.4x FY27 PB** [1] — a meaningful step up from today's adjusted 1.0x but not a return to pre‑2016 highs.

---

## 2. CLSA's broader sector framework — divergence, not "rising tide"

The 28‑May‑2025 *India Financials — 4QFY25 Review: Divergent trends* lays out CLSA's overarching view that the rerating debate has to be played selectively [5]:

> "4QFY25 was a mixed quarter for the Indian Banking sector, with HDFCB and ICICIB reporting healthy numbers, while the others reporting soft numbers… During earnings season, we **upgraded HDFCB to O‑PF and downgraded Kotak and IIB to HLD**. We continue to prefer ICICIB (O‑PF) as a stable player and Bandhan (HC O‑PF) as a high-beta recovery play in microfinance." [5]

The actions tell the story:

| Bank | CLSA Rating | Role in the rerating thesis |
|---|---|---|
| **SBI** | O-PF, TP Rs1,050 | Flagship rerate candidate — "Ripe for re-rating" [1] |
| **HDFCB** | O-PF (upgraded) | Quality re-acceleration; LDR normalising, opex leadership [5] |
| **ICICIB** | O-PF | Preferred "stable compounder" — best ROE in covered universe [5] |
| **Axis** | O-PF | Tepid 4QFY25, credit costs still elevated [5] |
| **Bandhan** | HC O-PF, TP Rs220 | High-beta MFI recovery, "undemanding valuation leaves room for rerating" [6] |
| **Federal Bank** | O-PF | More focused execution path |
| **Kotak** | HLD (downgraded) | Mixed quarter; spends declining, CASA decline among the sharpest |
| **IndusInd** | HLD (downgraded) | Hit on multiple fronts; "A quarter to forget" |
| **SBI Cards** | U-PF | Asset quality improving but valuation/growth disappointing |

The pattern: CLSA is **upgrading the survivors of the divergence (HDFCB, SBI) and downgrading the laggards (Kotak, IIB)** — explicitly rejecting a "buy the basket" rerating play. Asset quality is the cleaving variable: HDFCB, ICICIB and SBI delivered healthy quality, Axis credit costs remained elevated, and IIB GNPL jumped on rectification of misreporting in earlier quarters [8].

---

## 3. The pushback — CLSA disputes the easy rate-cut rerating narrative

This is the most differentiated part of CLSA's positioning. In the **19‑May‑2025 *India Banks — The CASA-Repo affair***, Piran Engineer / Roshny Munshi tested the consensus argument used by many bank CEOs: "CASA ratios will improve once rates are cut, and that will drive NIM expansion and a rerate." CLSA's verdict [7]:

> "Our analysis does not show any meaningful correlation (inverse or otherwise) between the repo rate and CASA ratios. We believe that CASA ratios improve materially only when term deposit (TD) rates fall below a certain threshold (**sub-6%**), making households indifferent between savings and term deposits. Our correlation analysis for various rates suggests bond yields are factoring in another 50bp repo rate cut; if this happens, TD rates are likely to be cut another 20-30bp to **c.6.5%**. **This alone would not be enough to entice depositors to move money from TD to savings deposits**." [7]

**Implication for the rerating debate**: CLSA is explicitly arguing that the most common bull narrative — "RBI cuts → CASA recovers → NIMs expand → multiples rerate" — is empirically not supported by 15+ years of data. TD rates need to fall *below 6%* before the mechanism kicks in, which on their math requires more than the next 50bp of cuts. That's why their FY26 estimates model **NIM compression with a 75bp repo‑cut assumption**, with recovery only in FY27 as deposits reprice.

So when CLSA backs a rerate for SBI, it is **not** a "Fed-cuts-everything-up" call — it is a stock‑specific, value‑unlocking + market‑share + treasury‑optionality + de‑anchoring call.

---

## 4. Where the debate's risks sit (per CLSA)

CLSA's hedges to its own rerating thesis are explicit:

- **FY26 will be the trough quarter on NIMs** — sector earnings risk before the rerate plays out. CLSA models **~10bp NIM compression in FY26** for SBI, partial recovery in FY27.
- **Loan growth has moderated system-wide** from ~15‑16% to ~11% in FY25; private banks expected to reaccelerate but PSUs to slow [5].
- **PSU‑bank NIM compression is sharper than private**, possibly due to quicker EBLR pass-through. BOB and PNB NIMs down ~10bp QoQ in 4QFY25 vs SBI stable.
- **MFI stress is real, not over** — Bandhan MFI GNPL rose sharply to 13.2% in 4QFY25; CLSA's Bandhan O-PF is a *bet on recovery*, not a denial of the stress.
- **Stock-specific landmines** — IIB GNPL increased due to misreporting rectification, BOB unsecured GNPL still rising (~3.9%).

---

## Synthesis — CLSA's position on one line

**CLSA's positioning on the India banks rerating debate is selectively constructive, anchored on idiosyncratic stories (SBI re-anchoring, HDFCB re-acceleration, ICICIB compounding, Bandhan MFI recovery), and explicitly skeptical of the "rate cuts will lift the whole sector" version of the rerating thesis.** Their top vehicle for the rerate trade is **SBI** (O-PF, TP Rs1,050 = 1.4x FY27 PB), where the case is structural de‑anchoring + value unlocking, not cyclical NIM expansion. Within private banks, they have **rotated quality up (HDFCB upgrade)** and **rotated franchise concerns down (Kotak, IIB downgrades to HLD)**.

---
**Sources**
[1] State Bank of India — O-PF (Ripe for re-rating) — CLSA (26 Jun 2025) — 607962892LinqAlpha.PDF
[2] State Bank of India — O-PF (Ripe for re-rating) — CLSA (26 Jun 2025) — 607962892LinqAlpha.PDF
[3] State Bank of India — O-PF (Ripe for re-rating) — CLSA (26 Jun 2025) — 607962892LinqAlpha.PDF
[4] State Bank of India — O-PF (Ripe for re-rating) — CLSA (26 Jun 2025) — 607962892LinqAlpha.PDF
[5] India Financials — 4QFY25 Review: Divergent trends — CLSA (28 May 2025) — 607960783LinqAlpha.PDF
[6] India Financials — 4QFY25 Review: Divergent trends (Bandhan investment thesis) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF
[7] India Banks — The CASA-Repo affair — CLSA (19 May 2025) — 607959865LinqAlpha.PDF
[8] India Financials — 4QFY25 Review: Divergent trends (Status quo on asset quality) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF
[9] State Bank of India — O-PF (Ripe for re-rating) — Upside optionality from treasury gains — CLSA (26 Jun 2025) — 607962892LinqAlpha.PDF

