Indian banks have reported decent earnings growth during the fourth quarter of FY24 led by healthy loan growth. While net profit growth of listed banks was aided by increase in other income and credit growth, net interest margins saw divergent trends, largely weighed down by rising cost of funds.
The total net profit of listed public sector as well as private sector banks in FY24 jumped 39% year-on-year (YoY) to cross ₹3 lakh crore for the first time, Prime Minister Narendra Modi said.
While the 26 private lenders posted a net profit of ₹1.78 lakh crore, the 12 PSU banks reported a net profit of ₹1.41 lakh crore in FY24, said a report.
This significant improvement in the health of India’s banking sector has garnered praise from Prime Minister Narendra Modi. Terming this as a “remarkable turnaround”, PM Modi said that the improvement will help improve credit availability to poor, farmers and MSMEs.
“In a remarkable turnaround in the last 10 years, India's banking sector net profit crosses ₹3 lakh crore for the first time ever. When we came to power, our banks were reeling with losses and high NPAs due to the phone-banking policy of UPA. The doors of the banks were closed for the poor. This improvement in the health of banks will help improve credit availability to our poor, farmers and MSMEs,” PM Modi said in a post on X on May 20.
Meanwhile, market consensus has upgraded FY25 net profit estimates for the state-run lenders by mid-single digit versus largely stable for the private banks.
Banks reported 9% core Pre-Provisions Operating Profit (PPOP) and 21% YoY PAT growth in Q4FY24. Banks with elevated loan-to-deposit ratio (LDR) lost loan market share in FY24, and de-grew corporate loans in Q4 given weak pricing power.
IIFL Securities expects system loan growth to slow down to 13% in FY25.
With private banks making inroads into Sub-Urban & Rural (SURU) and weakening government agency business, PSU banks lost 20-50 bps of deposit market share in FY24.
“Deposit competition remains aggravated with 10-50 bps increase in TD rates CYTD, banks augmenting funds via equity, CD and bond issuances, and drawdown of excess liquidity buffer. Despite asset yield expansion, NIM outcomes were divergent, and should remain so in FY25,” IIFL Securities said.
Assuming no rate-cuts in FY25, the brokerage firm’s residual re-pricing framework suggests spreads to decline further by 5-17 bps for select banks. ICICI Bank, Kotak Mahindra Bank and State Bank of India (SBI) should see higher NIM compression; lower for Axis Bank, HDFC Bank and Bank of Baroda; and improvement for RBL Bank, Federal Bank and IndusInd Bank.
Agri, MSME and MFI slippages inched-up, but overall credit costs remain low. PSU banks saw positive earnings revision, but the cyclical tailwinds (low LDRs, better NIM trajectory and low credit costs) should abate in a few quarters, it added.
IIFL Securities’ top picks in the banking sector are Axis Bank, HDFC Bank and IndusInd Bank in the private banks, and Bank of Baroda in the PSU banks.
Here are the IIFL Securities' recommendations on top banking picks:
Axis Bank | Buy | Target Price: ₹1,290
HDFC Bank | Buy | Target Price: ₹1,760
IndusInd Bank | Buy | Target Price: ₹1,680
Bank of Baroda | Buy | Target Price: ₹300
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
