Will private banks spring a surprise in Q1 earnings? Analysts pick favourites

NEW DELHI: With credit growth picking up momentum, many analysts expect banks to report healthy and resilient June quarter earnings, led by higher business growth and NIM expansion. However, high treasury losses may play spoilsport. Dalal Street analysts expect large private sector bank stocks to outperform.

“We expect the quarter to be strong for the banking industry as a whole and expect larger private banks to outperform. We expect the return metrics to improve driven by improving loan growth, improving NIMs and moderate credit costs,”

said in its earnings outlook for banks.

Led by continued strength in the retail and SME segment, credit growth had accelerated to about 12.1 per cent YoY in the middle of June.

NIM or net interest margin is expected to grow since the yield on advances would have moved up faster than the cost of deposits due to repo rate-linked loans getting re-priced immediately.

Estimates by

analysts indicate steady traction in earnings over FY23/FY24, even as it expects treasury income to be subdued and near-term operating expenditure to remain elevated, likely to be offset by an uptick in NII and lower credit cost.

The domestic brokerage expects private sector banks to report an earnings growth of about 29 per cent in FY23. For PSU banks, the estimate is that of about 26 per cent.

“Private banks are expected to report a PPOP growth of 7.4 per cent YoY (-2 per cent QoQ) and PAT growth of 39.8 per cent YoY (-13.5 per cent QoQ) in 1QFY23. Loan growth is projected to remain strong. We forecast loans by private banks to grow by 18 per cent/19 per cent over FY23/FY24,” Motilal said.

It estimates to deliver a loan growth of 20 per cent YoY over 1QFY23 and and to grow by 29 per cent/19 per cent. and are expected to report a growth of 22 per cent and 18 per cent YoY.

Kotak Institutional Equities, however, expects a weak quarter on earnings growth for banks in Q1 as operating profit growth would be weak due to high treasury losses.

“We expect banks under coverage to report a 7 per cent YoY decline in earnings led by a weak operating performance growth (decline of 25 per cent YoY) primarily on account of high treasury losses. However, we expect NII growth to bounce back well at 15 per cent YoY on the back of 12 per cent loan growth. We expect NIM to be stable across all banks for this quarter,” it said.

On the asset quality front, YES Securities said fresh slippages in Q1 would generally be stable to slightly higher on a sequential basis. The brokerage sees a material rise in provisions sequentially for Axis Bank, Kotak Bank,

and CSB and a moderate rise for HDFC Bank and DB.

Top picks
Motilal Oswal’s top picks in the banking space are ICICI Bank,

, HDFC Bank and Federal Bank.

“HDFC Bank has been delivering a healthy growth in advances, driven by strong trends in Retail loans. The growth has been fueled by commercial and rural banking, while wholesale advances have seen modest trends. We expect the steady traction to continue and estimate a 19 per cent CAGR in loans over FY22-24,” it said. JM Financial is positive on ICICI Bank, Axis Bank and IndusInd Bank.

Kotak has buy ratings on SBI, Axis Bank, HDFC Bank and ICICI Bank.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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