Sector Update

Banking
Modest earnings growth expectations

Summary
Q4FY2024 Results Preview
Š Banks are expected to report modest earnings growth in Q4FY24 mainly driven by lower
Sector: Banking credit cost as asset quality trends are strong.
Š PPoP is likely to fall or grow modestly as NII growth is expected to be weak for most banks
Sector View: Positive
due to NIMs contraction.
Š Deposit mobilisation and loan growth is expected to be healthy. NIMs progression would be
a key monitorable as COF is expected to peak out in coming quarters.
Š Top preferred picks: Large Private Banks – ICICI Bank, Axis Bank, Kotak Bank and HDFC
Bank; Mid-Tier Private Banks – IndusInd Bank and Federal Bank; PSBs – SBI, BOI and PNB
remain our preferred picks.

Banks are expected to deliver modest earnings growth in Q4FY24 mainly driven by lower
credit cost. PPoP growth is expected to be soft due to weak NII growth. System loan
Our coverage universe growth has been relatively stable and is currently at ~16.5%. Credit growth is healthy
Companies CMP Reco/ and is being mainly driven by retail and MSME loans, while corporate loan growth is still
PT (Rs) lower. We expect banks in the Sharekhan coverage universe to report a 13% y-o-y growth
(Rs) View
Large Private Banks in earnings in Q4FY2024E. Net interest income (NII) growth is expected to be weak as
NIMs are expected to decline q-o-q. Credit cost is likely to remain lower, as net NPAs are
HDFC Bank 1,549 Buy 1,900
at their lowest. Asset quality is expected to remain stable with modest slippages along
ICICI Bank 1,082 Buy 1,300
with higher recoveries and upgrades. Mobilisation of retail deposits (CASA + retail time
Axis Bank 1,058 Buy 1,350
deposits), outlook on incremental loan growth, future NIM progression trajectory would
Mid-Tier Private Banks be a key focus area.
Kotak Mahindra 1,785 Buy 2,250
Bank Loan growth to remain healthy: Banks are clocking healthy loan growth led by strong retail and
Indusind Bank 1,551 Buy 1,850 MSME credit, as reflected in business updates of most lenders. Although there has been some
Federal Bank 155 Buy 170 moderation in loan growth led by higher credit-deposit ratio and recent regulatory tightening
in unsecured loan segment, where growth is expected to be calibrated going forward. System
Small Private Banks
loan growth is relatively stable at 16.5% y-o-y. Retail & MSME books are seeing healthy traction.
AU SFB 634 Hold 700
Corporate loan growth has been sluggish, but as capex picks up gradually, corporate credit
CUBK 158 Hold 155
growth is expected to pick up with a lag. Among our coverage banks, we expect banks to report
PSBs 3-5% q-o-q growth in loans. Outlook on incremental loan growth would be important. Deposit
SBI 764 Buy 915 growth is gaining traction driven by time deposits and CA deposits.
PNB 137 Buy 140
Stable asset quality: Asset quality is expected to remain stable with modest slippages and
BOI 148 Buy 165 higher recoveries and upgrades. For most banks, the restructured book has seen significant run
Source: Company; Sharekhan Research down and is expected to see fewer slippages from hereon. Moreover, a lower SMA book would
lend support. Thus, we expect core credit costs to remain flat sequentially for most banks as the
portfolio appears to be holding up well except some early delinquencies in MFI and lower ticket
size personal loans (here banks’ exposure is minimal).

NIMs to fall by 10-15 bps: Re-pricing of deposits is putting pressure on NIMs as most of the
repricing on the asset side has already happened. Additionally, CASA ratio for most banks have
been lower. Thus, NIM compression of 10-15 bps q-o-q is expected for the coverage universe
during the quarter. HDFCB & IIB are expected to show flat trends in NIMs while PSBs could see
Price chart lower margin compression as they could manage to re-price the MCLR book marginally higher
50,000 because earlier pass-through was slower. NIMs progression would be a key monitorable as cost
48,000
of funds is expected to peak out and liability repricing is also expected to be fully complete in
46,000
44,000 coming quarters.
42,000
40,000 Our View
38,000
Strong economic activity, gradual revival of the capex cycle led by private investments, higher
Apr-23

Apr-24
Aug-23

Dec-23

consumption trends, and increased business confidence are helping to sustain healthy loan
growth momentum. Currently focus is more on deposit growth as it could have a bearing impact
Nifty Bank
on loan growth and NIMs going forward. Credit cost normalisation is expected to be gradual but
Source: NSE; Sharekhan Research
its impact would be manageable unless there is a sharp macroeconomic downturn. Moreover,
additional contingent provision buffers, a higher PCR, higher capital buffers, and lower stressed
assets augur well for the banking sector’s outlook. Valuations are reasonable vs the sustainable
RoE trajectory of ~ 15% over the medium.
Preferred Picks:
Large Private Banks – Large Private Banks – ICICI Bank, Axis Bank, Kotak Bank and HDFC Bank;
Mid-Tier Private Banks –IndusInd Bank and Federal Bank; PSBs – SBI, BOI and PNB.

April 05, 2024 1

 Sector Update
Q4FY2024 Result Estimates (Standalone)
NII (Rs cr) PPoP (Rs cr) PAT (Rs cr)
Banks Q4 Q4 Q3 YoY QoQ Q4 Q4 Q3 YoY QoQ Q4 Q4 Q3 YoY QoQ
FY24E FY23 FY24 % % FY24E FY23 FY24 % % FY24E FY23 FY24 % %
Large Private Banks
HDFC Bank 29,213 23,352 28,471 25.1 2.6 28,594 18,621 23,647 53.6 20.9 19,185 12,047 16,373 59.2 17.2
ICICI Bank 18,962 17,667 18,679 7.3 1.5 14,734 13,826 14,724 6.6 0.1 10,530 9,122 10,272 15.4 2.5
Axis Bank 12,764 11,742 12,532 8.7 1.9 9,212 9,168 9,141 0.5 0.8 6,284 6,625 6,071 -5.1 3.5
Mid-Tier Private Banks
Kotak Mahindra 6,625 6,103 6,554 8.6 1.1 4,666 4,647 4,566 0.4 2.2 3,234 3,496 3,005 -7.5 7.6
Bank
Indusind Bank 5,495 4,669 5,296 17.7 3.8 4,144 3,753 4,002 10.4 3.5 2,361 2,041 2,298 15.7 2.7
Federal Bank 2,186 1,909 2,123 14.5 2.9 1,393 1,335 1,437 4.4 -3.1 949 903 1,007 5.1 -5.7
Small Private Banks
AU SFB 1,342 1,213 1,325 10.6 1.3 638 571 657 11.7 -2.9 374 425 375 -11.8 -0.2
CUBK 520 514 516 1.1 0.8 357 417 364 -14.3 -1.8 233 218 253 6.6 -8.1
PSBs
SBI 40,934 40,393 39,816 1.3 2.8 19,197 24,621 20,336 -22.0 -5.6 13,412 16,695 9,164 -19.7 46.4
PNB 10,602 9,499 10,293 11.6 3.0 7,000 5,866 6,331 19.3 10.6 2,914 1,159 2,223 151.4 31.1
BOI 5,627 5,524 5,463 1.9 3.0 3,400 4,184 3,004 -18.7 13.2 2,175 1,350 1,870 61.1 16.3
Source: Company; Sharekhan Research

Valuations
RoA (%) RoE (%) P/E (x) P/B (x)
Banks Reco. CMP (Rs.) TP (Rs.)
FY25E FY26E FY25E FY26E FY25E FY26E FY25E FY26E
Large Private Banks
HDFC Bank Buy 1,549 1,900 1.9 2.0 14.8 16.0 16.3 13.9 2.5 2.2
ICICI Bank Buy 1,082 1,300 2.2 2.2 16.6 15.8 14.7 13.2 2.3 1.9
Axis Bank Buy 1,058 1,350 1.8 1.8 16.1 15.4 11.7 10.5 1.7 1.5
Mid-Tier Private Banks
Kotak Mahindra Bank Buy 1,785 2,250 2.3 2.3 13.5 13.2 18.0 16.1 2.3 2.0
IndusInd Bank Buy 1,551 1,850 1.9 2.0 15.0 15.8 11.7 9.5 1.6 1.4
Federal Bank Buy 155 170 1.3 1.3 14.3 14.5 8.7 7.4 1.2 1.0
Small Private Banks
AU SFB Hold 634 700 1.6 1.7 12.4 13.1 23.6 17.0 2.5 2.2
CUBK Hold 158 155 1.4 1.4 11.3 11.5 11.5 10.1 1.3 1.2
PSBs
SBI Buy 764 915 1.1 1.1 16.9 15.8 6.8 6.2 1.1 0.9
PNB Buy 137 140 0.9 1.0 13.1 13.1 10.0 8.8 1.3 1.1
BOI Buy 148 165 1.0 1.0 12.4 11.6 7.2 6.9 0.9 0.8
Source: Company; Sharekhan Research

April 05, 2024 2

 Sector Update
Company wise Key expectations
AU Small
Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
Finance Bank
NII 1,213 1,325 1,342 10.6 1.3 • NIM are likely to be lower q-o-q.
PPOP 571 657 638 11.7 -2.9 • Cost ratios expected to remain elevated.
• Key monitorable would be focus on growth guidance,
PBT 530 498 498 -6.1 0.0
margin trends and integration with Fincare SFB.
PAT 425 375 374 -11.8 -0.2
Axis Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 11,742 12,532 12,764 8.7 1.9 • NIMs expected to decline q-o-q by ~8-10 bps.
PPOP 9,168 9,141 9,212 0.5 0.8 • Loan growth is expected at 15% y-o-y.
• Key monitorable would be growth outlook and trend in
PBT 8,862 8,113 8,379 -5.5 3.3
NIMs.
PAT 6,625 6,071 6,284 -5.1 3.5
Bank of India Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 5,524 5,463 5,627 1.9 3.0 • The bank has reported healthy loan growth of 14% y-o-y
PPOP 4,184 3,004 3,400 -18.7 13.2 while deposit growth is at 10% y-o-y.
• Key monitorable would-be loan/ deposit growth, margin
PBT 2,133 2,503 2,900 36.0 15.9
outlook and major recoveries lined up going ahead.
PAT 1,350 1,870 2,175 61.1 16.3
City Union Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 514 516 520 1.1 0.8 • Loan growth is expected to be below industry rate.
PPOP 417 364 357 -14.3 -1.8 • Key monitorable would be loan/ deposit growth outlook
along with guidance on credit cost and recovery in return
PBT 258 318 291 12.6 -8.6
ratios.
PAT 218 253 233 6.6 -8.1
Federal Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 1,909 2,123 2,186 14.5 2.9 • NIMs likely to decline marginally/ flat q-o-q.
PPOP 1,335 1,437 1,393 4.4 -3.1 • The bank has reported healthy loan growth of 18% y-o-y
while deposits grew by 20% y-o-y.
PBT 1,218 1,346 1,265 3.9 -6.0
• Key monitorable would-be loan/deposit growth outlook
PAT 903 1,007 949 5.1 -5.7 and trend in return ratio.

HDFC Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 23,352 28,471 29,213 25.1 2.6 • Asset quality is expected to remain stable.
PPOP 18,621 23,647 28,594 53.6 20.9 • NIMs are expected to be flat q-o-q.
• Key monitorable would-be progress of NIMs, loan/deposit
PBT 15,936 19,431 25,512 60.1 31.3
growth outlook. Non-interest income is expected to be
PAT 12,047 16,373 19,185 59.2 17.2 higher led by stake sale in HDFC Credila.

ICICI Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 17,667 18,679 18,962 7.3 1.5 • Advances are likely to grow by ~17% y-o-y, aided by
PPOP 13,826 14,724 14,734 6.6 0.1 broad based growth in all segments.
• NIMs to decline q-o-q by ~15 bps.
PBT 12,207 13,674 14,002 14.7 2.4
• Key monitorable would-be deposit growth and margins
PAT 9,122 10,272 10,530 15.4 2.5 outlook.

IndusInd Bank Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 4,669 5,296 5,495 17.7 3.8 • NIM to remain stable q-o-q
PPOP 3,753 4,002 4,144 10.4 3.5 • Asset quality expected to remain stable.
• Key monitorable would-be outlook on retail deposit
PBT 2,723 3,068 3,139 15.3 2.3
mobilisation.
PAT 2,041 2,298 2,361 15.7 2.7
Kotak Mahindra
Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
Bank
NII 6,103 6,554 6,625 8.6 1.1 • Advances are likely to grow at 16% yoy.
PPOP 4,647 4,566 4,666 0.4 2.2 • NIM to decline q-o-q by 20 bps.
• Key monitorable would-be deposit/ loan growth outlook
PBT 4,500 3,987 4,300 -4.4 7.9
PAT 3,496 3,005 3,234 -7.5 7.6

April 05, 2024 3

 Sector Update
Company wise Key expectations
PNB Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment
NII 9,499 10,293 10,602 11.6 3.0 • Margin expected to be lower marginally q-o-q.
PPOP 5,866 6,331 7,000 19.3 10.6 • The bank has reported loan growth of 12% y-o-y while
deposits grew by 7% y-o-y.
PBT 2,036 3,592 4,700 130.8 30.8
• Key monitorable would-be growth outlook, margin and
PAT 1,159 2,223 2,914 151.4 31.1 credit cost outlook.

SBI Q4FY23 Q3FY24 Q4FY24E YoY (%) QoQ (%) Comment

NII 40,393 39,816 40,934 1.3 2.8 • Advances are likely to grow at ~14% y-o-y.
PPOP 24,621 20,336 19,197 -22.0 -5.6 • Margin to be lower marginally q-o-q
• Asset quality to remain stable.
PBT 21,305 19,648 18,124 -14.9 -7.8
• Key monitorable - equity capital raising in near term.
PAT 16,695 9,164 13,412 -19.7 46.4
Source: Company; Sharekhan Research

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

April 05, 2024 4

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent industry
growth), increasing investments, higher entry barrier, and favorable government
policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse government
policies affecting the business fundamentals and global challenges (currency
headwinds and unfavorable policies implemented by global industrial institutions)
and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record, Healthy
Balance sheet/cash flows, differentiated product/service portfolio and Good corporate
governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as natural
calamities resulting in near term uncertainty, Company specific events such as factory
shutdown, lack of positive triggers/events in near term, raw material price movement
turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of key
management personal, questionable corporate governance, high commodity prices/
weak realisation environment resulting in margin pressure and detoriating balance
sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations are
trading at discount to industry leaders/historical average multiples, Expansion in
valuation multiple due to expected outperformance amongst its peers and Industry
up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of roadblocks
such as corporate governance issue, adverse government policies and bleak global
macro environment etc warranting for lower than historical valuation multiple.
Source: Sharekhan Research
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