The subdued numbers for the lenders will be driven by muted net interest income (NII) due to slowdown in loan growth. However, asset-quality metrics should be less worrisome, barring lenders exposed to the microfinance sector, analysts said.
“Provisional business data released by a cross-section of banks suggest that loan growth has slowed, with the emphasis shifting to lowering the credit-to-deposit ratio,” said Kotak Equities.
The slower earnings trend will likely be seen for both public and private sector lenders. Private banks are expected to report a PAT growth of just 3% year-on-year, according to ICICI Securities. Meanwhile, NII growth for the July-September 2024 period is seen around 11% year-on-year.
Among the private banks, Motilal Oswal projects Bandhan Bank to lead the peers with a growth at 24% year-on-year, followed by IDFC Bank at 23% year-on-year and Federal Bank at 16% year-on-year.
HDFC Bank, the market leader in the private lending space, reported a slowing loan growth of 7% year-on-year, with the bank choosing to slow down or securitize the portfolio.The net interest income (NII) for the Bank is likely to grow around 10% year-on-year, while PAT may rise by a modest 2% year-on-year.For public sector lenders, NII growth will likely remain moderate at 6% year-on-year as margins maintain a marginal downward bias. State Bank of India (SBI) will, however, continue its strong show from the last few quarters with 17% PAT growth and 6% rise in NII.
Which stocks to buy
Analysts said valuations remain close to long-term averages and banks remain one of the few pockets of value. Notwithstanding the valuation argument, JM Financial sees growth (NII, PPOP) and asset quality to be more critical factors for sector re-rating.
The brokerage continues to prefer larger banks and its key picks are ICICI Bank, Axis Bank and SBI.
Meanwhile, Nomura is bullish on stocks with stronger underwriting capabilities and lower exposures to segments where credit cost is likely to go up (especially unsecured retail and microfinance).
We also have a preference for banks that have lower deposit-led growth pressures. In that context, our top picks remain ICICI Bank, SBI, Kotak Mahindra Bank and Federal Bank.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)