Bank Q3 Results: ICICI Bank, Kotak Mahindra Bank outshine banking pack; RBL lags. What to make of the earnings season

Bank Q3 Results: ICICI Bank, Kotak Mahindra Bank, IDFC First Bank, and Bandhan Bank shares were in high demand on Monday, aiding a rise of around one per cent in the Nifty Bank, whose 12 constituents also include SBI, HDFC Bank, Axis Bank, and Bank of Baroda. The strength in the banking space can be attributed to ICICI Bank and Kotak Bank's better-than-expected earnings.

A majority of major banks have reported financial results in line with Street estimates in the ongoing earnings season, according to Varinder Bansal, Founder of Omkara Capital.

Heavyweights ICICI Bank (4.65 per cent) and Kotak Mahindra Bank (5.4 per cent) reported record net interest margins (NIMs), Bansal pointed out. Net interest margin is a key measure of profitability for financial institutions. 

Also Read: ICICI Bank Q3FY23 Results: Private lender’s profit, NII each grow 34%; asset quality improves - beat estimates

ICICI Bank shares gained as much as 1.5 per cent to Rs 883.9 apiece, and the stock of Kotak Mahindra Bank rose nearly two per cent in intraday trade on Monday.

Brokerages are bullish on both stocks.

CICI Bank Chart

Kotak Mahindra Bank Chart

According to Bansal, RBL Bank fared better in the quarter than its peer Bandhan Bank. Shares of RBL have already doubled in the last 3-4 months from Rs 80-90 per share to Rs 160 apiece, he highlighted.

Bansal, however, does not find the stock attractive from a valuation perspective.

Also Read: Kotak Mahindra Bank Q3FY23 Results: Profit, NII grow over 30% YoY; beat estimates – asset quality improves

Bandhan Bank shares surged over 5 per cent to Rs 249.85 per share on the BSE intraday.

Bandhan Bank on Friday reported a 66 per cent decline in its consolidated December quarter net profit at Rs 290.56 crore owing to decline in net interest income and rise in provisions for bad loans. The lender said it sees improved margins in the March quarter.

Analyst Observations

The former has been outperforming India’s largest private lender HDFC Bank back-to-back in 10-12 quarters in terms of growth, Bansal said, adding that Kotak Bank numbers were good too on all fronts, however, the subsidiaries' performance was not as good as expected; declined sequentially.

The analyst observed that the banks' credit growth is rising, however, the same growth isn’t visible in deposits. He believes the chances of NIMs making a top is quite evident with almost no or marginal growth CASA (current account and saving accounts) of lenders.

According to Bansal, big banks are cheaper than smaller banks in terms of valuations, for example, IDFC First Bank, which reported healthy Q3 numbers, trades at a book value of 1.5 – higher than other banks like Canara Bank, and Federal Bank among others.

Shares of IDFC First Bank have pared gains to trade flat with a negative bias, the counter touched a day’s high level of Rs 61.85 per share, up over 4 per cent as compared to Friday’s closing price.

Metals, Technology, and Agrochemical companies that announced Q3 results over the weekend failed to meet Street expectations, the market expert mentioned.