In a note on India’s banking space, Citi said the sector is entering the current phase from a position of strength, supported by decade-low gross non-performing assets (GNPAs) and robust CET-1 capital buffers.
However, the brokerage cautioned that escalating geopolitical tensions in West Asia could introduce new macro headwinds for banks.
According to Citi, the risks could emerge through multiple channels, including higher crude oil prices, disruptions in global trade flows, volatility in foreign exchange and liquidity conditions, and the possibility of a widening current account deficit.
The brokerage also warned that a prolonged conflict could eventually weigh on asset quality, tighten liquidity conditions, increase market risk, and slow credit growth across the banking system.
In terms of positioning within the financial sector, Citi said private sector banks remain the most defensive, followed by public sector banks, while NBFCs appear relatively more vulnerable in a risk-off environment.
Meanwhile, global oil prices surged past the $100 per barrel mark again amid little sign of de-escalation in the West Asia conflict.
Brent crude closed above $100 a barrel for the first time since 2022.
Reports of additional ships being struck in the Persian Gulf overnight and remarks from Mojtaba Khamenei further fuelled the rally. Khamenei said the Strait of Hormuz should remain shut as a tactic to “pressure the enemy.”
In global markets, the US Dollar Index strengthened to a two-month high and is approaching the 100 mark. At the same time, the yield on the 30-year US Treasury note climbed to 4.9% amid concerns over the potential costs of a prolonged US-Iran conflict.
