Earning Growths to Moderate for Banks

Business News Finance

On top of high double-digit credit growth and continued low credit cost, softer growth is expected in Indian Banks in the June quarter between 14-16% year-on-year.

Image Credit: Business Standard

After a stable March quarter, there is a soft growth forecasted to take place in the June quarter ranging from 14-16% year-on-year, along with double-digit credit growth and continued low credit cost. Banks are expected to see mixed trends in terms of margins on account of high growth in high-cost term deposits.  In the case of private banks, Motilal Oswal predicts a profit after tax growth of around 9% year-on-year while the same may reduce to 2% quarter-on-quarter. Experts have analyzed the building of 28% growth in the net interest income for HDFC bank while Kotak and ICICI may see the same growth, rising 15% and 7% year-on-year.

In the case of Kotak, the growth seems to be healthy and stable as the lender is likely to post a profit of 5% year-on-year, whereas Axis Securities is expecting HDFC to reach a profit growth of 32%. ICICI is predicted to attain profit after tax growth of 7% year-on-year. The growth of credit and deposits is seemingly weak in the first quarter but, Nuvama said the feedback on loan growth is stronger than usual. Axis Securities said, ‘We expect banks to register strong credit growth of 18% year-on-year (ex HDFC Bank). Deposit growth continues to lag credit growth, with systemic deposit growth at 13% year-on-year.’

According to Centrum Equity Research, ‘Banks are expected to sustain their loan book and deposit growth trajectory in Q4 FY24, supported by favorable industry trends and expanding range of product offerings.’ The data revealed by the Reserve Bank of India shows the growth of bank loans went from 20.2% year-on-year to Rs 164.34 trillion and deposits expanding by 13.5% to Rs. 204.75 trillion till the 22nd of March, 2024. ‘The increased competition among the lenders for deposit mobilization has resulted in banks offering competitive rates for term deposits’, said Motilal Oswal. Axis Securities said, ‘With continued deposit repricing onCoF coupled with limited loan re-pricing opportunities, we expect banks to continue reporting margin compression in Q1FY25.’

The improvement in asset quality is predicted to continue despite the slippages and will be complemented by upgrades, robust recoveries, and sales to the National Asset Reconstruction Company of India which will eventually enhance the ratios of quality asset. Nirmal Bang said regarding this, ‘On the asset quality font, while asset quality continues to remain pristine and at decadal lows, we expect credit cost to start normalizing upwards gradually towards long term average.’