Banking Q4 Results Preview: As investors await the onset of a new earnings season for India Inc, all eyes will be on HDFC Bank as the country's largest lender by market value reports its financial results for the fourth and final quarter of the financial year 2023-24 on April 20. Analysts expect the banking sector to witness mid-single-digit percentage growth in net interest income (NII) and margin compression owing to the elevated cost of funds, though they expect some improvement on the asset quality front. 

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Here's what you can expect from the banking sector in the March quarter (Q4 FY24):

Net interest income (NII) 

According to Axis Securities, commercial banks are likely to register an average 6.0 per cent increase in net interest income (NII), or the difference between interest earned and interest paid, in the fiscal fourth quarter. The brokerage has 14 banks in its coverage universe, including SBI, Bank of Baroda, HDFC Bank, ICICI Bank, Federal Bank, and Bandhan Bank.

Prabhudas Lilladher expects banks under its coverage to witness a weak quarter with core earnings seen falling 4.6 per cent sequentially mainly on account of a reduction in NIM. It sees their NIIs increasing 1.8 per cent on a quarter-on-quarter basis.

Net interest margin (NIM)

Analysts at the brokerage expect the banks under its coverage to take a hit to the tune of 5-15 basis points (bps) in net interest margin (NIM), a key measure of profitability for financial institutions, as the earnings momentum decelerates for the sector. 

Prabhudas Lilladher analysts expect the PSU banks in its coverage universe to register sequential loan growth of 5.0 per cent in the March quarter, better than 3.0 per cent in case of their large private sector counterparts.    

"Deposit growth is expected to be 5.7 per cent QoQ/15.9 per cent YoY. NII may increase by 2.3 per cent QoQ while NIM could decline by 12bps to 4.1 per cent (last quarter flat)," they wrote in a research report dated April 9.

Prabhudas Lilladher, which has 10 banking stocks under its coverage, has Axis Bank and HDFC Bank as its top picks: 

Stock Rating Target
Axis Bank Buy Rs 1,250
HDFC Bank Buy Rs 2,000
ICICI Bank Buy Rs 1,300
IndusInd Bank Buy Rs 1,740
Kotak Mahindra Bank Buy Rs 2,250
Federal Bank Buy Rs 180
DCB Bank Buy Rs 180
City Union Bank Accumulate Rs 160
Bank of Baroda Buy Rs 270
State Bank of India Buy Rs 770

Asset quality 

Although banks are likely to witness yet another strong quarter in terms of asset quality, the brokerage remains "vigilant of any pockets of stress in the unsecured portfolios", Axis Securities analysts wrote in a research report dated April 9.  

"Slippages should remain under control and asset quality improvement will continue, driven by healthy recoveries. Credit costs are likely to remain at a normalised level and reversal of AIF provisions for certain banks could lend some support to earnings. We do not see any significant levers for the ROAs of banks to improve," they wrote. 

"The focus will continue to remain on the outlook on business growth momentum going ahead and comments on peaking-out of CoF," the analysts added.

Prabhudas Lilladher expects public sector banks' asset quality to remain stable with steady slippage ratios, though it estimates their provisions at 15 bps.

The brokerage expects PSU banks' core net profit to fall 19.4 per cent sequentially to Rs 12,250 crore. 

Credit growth

Axis Securities expects the banks to register 17-18 per cent year-on-year credit growth in the March quarter. "Credit growth continues to be led by the retail and SME segments, with a gradual pickup in corporate lending. We expect some moderation in the unsecured lending  segment during the quarter on account of tightened norms by the regulator along with caution on part of lenders, considering the emergence of stress in certain pockets as seen in the previous quarter," according to the brokerage. 

The brokerage expects three banks to register positive fourth-quarter results: 

  • ICICI Bank
  • SBI
  • HDFC Bank

The brokerage expects "limited scope for loan re-pricing along with pressure owing to an increase in CoF will continue to pose headwinds for NIMs". 

How Nifty Bank stocks fared in Q4

The Nifty Bank index, whose 12 constituents include SBI, ICICI Bank, HDFC Bank and Axis Bank, ended the final and fourth quarter of FY24 2.4 per cent lower, underperforming and in contrast to a 2.7 per cent rise in the headline Nifty50 index.