The Connection Between Interest Rates and Banking Stocks
– Rising interest rates influence lending, borrowing, and profitability. – Banks adjust their strategies to maintain growth during rate hikes.
Positive Impact: Higher Net Interest Margins
– Banks earn more on loans compared to the cost of deposits. – Private banks like HDFC Bank and ICICI Bank benefit from their retail lending focus.
Negative Impact: Slowdown in Loan Growth
– High-interest rates may deter borrowers, affecting credit growth. – SME and retail loans are particularly sensitive to rate hikes.
Impact on Non-Performing Assets
– Rising rates increase repayment burdens, leading to higher default risks. – Banks with strong credit evaluation processes, like Kotak Mahindra Bank, manage this better.
Long-Term Implications for Investors
– Banks with diversified portfolios and strong deposit bases perform better during rate hikes. – Focus on banks like Axis Bank and ICICI Bank with sound risk management strategies.