Indian Banks’ Margins Hurt By Elusive Deposits As Rate Cuts Appear Distant

Indian banks’ rising credit costs and their struggle to attract customer deposits to mitigate this will continue to dominate discussions when HDFC Bank Ltd. and Kotak Mahindra Bank Ltd. report earnings on Saturday.

Banks in India that have used customer deposits to help finance their lending operations have seen these deposits dry up in recent quarters, as Indians increasingly park their money in equity funds over savings accounts and fixed deposits. Lenders have slowed loan growth, especially in retail segments, reflecting concerns from India’s central bank about unsecured loans and the need to lower loan-deposit ratios, analysts at Jefferies wrote.

HDFC Bank, whose loan-deposit ratio is especially high, managed to increase deposits 5.1% from a quarter ago, it said in a pre-earnings update earlier this month. Quarterly net income is still projected to grow just 1.9% as the company continues efforts to rein in its loan-deposit ratio to the central bank’s standard.

Markets are also split on a rate cut in December after inflation accelerated at a faster pace than expected last month. With high rates, banks also face high credit costs because of the lag in the repricing of deposits, which will worsen once rate cuts kick in.

Meanwhile, Hong Kong Exchanges & Clearing Ltd. may post higher earnings from an improving outlook for initial public offerings and a stock market rally driven by China’s stimulus measures.

Highlights to look out for:

Saturday: HDFC Bank (HDFCB IN) and Kotak Mahindra Bank (KMB IN) should see second-quarter profit grow 1.9% and 7.3%, respectively. Net income growth at HDFC Bank is expected to lag similar-sized banks while it beefs up deposits. This has led to a lower valuation than ICICI Bank and Kotak Mahindra, measured by price-to-book value. Kotak Mahindra is still banned from taking on new customers digitally, or issuing new credit cards. Analysts at Bloomberg Intelligence said this probably dragged on profit as it added compliance and technology costs.

Tuesday: Bajaj Finance’s (BAF IN) second-quarter net income should rise 16%, estimates show, supported by higher net interest income. The shadow lender’s second-quarter update led to concern about margins falling. Citi said Bajaj Finance’s net interest margin may decline by 14 basis points on a sequential basis because of higher funding costs.

Wednesday: HKEX (388 HK) may see a sixfold increase in IPO capital, while average daily stock turnover in Hong Kong rebounded during the quarter, said BI. Consensus is for 5.4% profit growth in the third quarter, led by revenue from its cash equities, commodities and derivatives.

• Hindustan Unilever’s (HUVR IN) second-quarter volume likely grew faster than in the first quarter, benefiting from a recovery in rural demand, with analysts at PL Capital and Motilal Oswal expecting 5% growth. Still, a rise in palm oil, cocoa and coffee prices likely weighed on margins, and consensus estimates predict a 1.3% drop in profit.

• Nidec (6594 JP) should see slight increase in second-quarter operating profit. Automotive business profit, excluding one-time charges, probably grew sequentially thanks to improved margins for electric vehicle motor systems. Small precision motor business operating profit likely rose, driven by hard disk drive motors and cooling system for artificial intelligence servers, BI said. The firm is expected to keep its operating profit target of ¥240 billion ($1.6 billion) for fiscal 2025.

Thursday: SK Hynix (000660 KS) is expected to post a third-quarter operating profit of 6.91 trillion won ($5 billion), up from a loss of 1.79 trillion won a year earlier, consensus shows. It should meet expectations thanks to improved average selling prices, BI said. The firm’s dominant market share in high-bandwidth memory chips contributed to a solid operating margin, while demand for standard DRAM chips used in smartphones and PCs may be slowing down, BI added.

Friday: Kweichow Moutai’s (600519 CH) third-quarter earnings per share and sales should rise by mid-to high-teen percentages, helped by robust demand, BI said. A decline in wholesale selling prices is also unlikely to make a huge dent in its earnings, given that the distiller sells to wholesalers and distributors at ex-factory prices, it added.

• Luxshare Precision’s (002475 CH) third-quarter adjusted net income likely rose 22.4%. BI said it saw order wins from Apple Inc. with the Vision Pro headsets and AirPods. There are concerns about its efforts to diversify in the next few years, as it currently gets more than three-quarters of its revenue from Apple.