Banking Q1 Results Review - Seasonally Weak Quarter; Margins To Remain Under Pressure: DRChoksey

Deven Choksey Research Report

The banks within our coverage have exhibited a modest increase in core operating performance, mainly due to the deceleration in credit growth. Nevertheless, HDFC Bank Ltd. has emerged as an anomaly, largely attributable to the impact of the merger and the partial deployment of surplus liquidity.

Deposit growth has been sluggish due to the rising popularity of alternative investment options, leading to an increased credit-to-deposit ratio across all the banks within our coverage universe.

We will monitor the trend in the upcoming quarters, as banks will need to strike a balance between credit and deposits to mitigate liquidity-related risks in the future.

We believe the net interest margins will remain under pressure in FY25E due to the higher cost of funds and a deliberate slowdown in unsecured loans.

Q1 FY25 reported an increase in slippages due to seasonal weakness and lower collections on account of general elections. With higher contingent provision buffers and modestly stressed accounts, the banking industry's prospects are promising, and we anticipate that asset quality will remain stable.

Banks across our coverage will continue to see superior return ratios led by consistently healthy earnings.

Banks are currently trading at 2.0 times FY26E book value, which is lower than their five-year average industry P/B multiple, which is 2.8x.

Top Picks:

We remain positive on IndusInd Bank, ICICI Bank and SBI considering the healthy business momentum, stable asset quality and superior return ratios.

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