Banking sector Q4 preview: PSU Banks to continue to post better earnings growth than private banks, says Elara

The brokerage company also highlighted that that the PSU Banks are likely to perform better in terms of growth in earnings than the private banks. “Among our coverage universe, we expect PSU banks to report better earnings growth than private ones, led by lower credit cost. We expect earnings discussions to be dominated by NIM and growth outcome,” it said.

The firm projects that the NIM pressure likely to sustain and funding cost pressures likely to persist in the Q4 FY24.

Also read: Q4 Results Preview | Telecom cos to report moderate growth on ARPU upgrades; Bharti Airtel, Jio to lead the pack

PSU vs private

According to the report, banks are at an unusual junction wherein frontline names have underperformed. With outperformance by other private and mid-tier PSU banks, the valuation gap between mid-tier and frontline has narrowed. 

“We retain our neutral stance on banks; hereafter, the riskreward may be tilted toward frontline peers. No significant asset quality challenges and better growth may ensure sustained rerating for PSU banks on earnings stability – with SBI being our top picks,” it added.

The firm estimates net interest income (NII) for its banking coverage universe to grow at nearly 8.3 per cent YoY during Q4FY24, adding that NII growth to be soft and low credit cost to drive earnings trajectory.

Also read: HDFC Bank Q4 Update: Gross advances rise 55% YoY to ₹24.69 lakh crore; deposits grow 26%; share price gains 3%

Large private banks are likely to post 15.5 per cent year-on-year (YoY) growth in NII, meanwhile, mid-size banks likely to post 6.6 per cent growth and PSU Banks to witness 1.1 per cent in Q4FY24.

In terms of profit after tax (PAT), PSU Banks to lead the chart with 17.9 per cent quarter-to-quarter (QoQ) growth expected in Q4 FY24. Whereas, private banks are likely to post of 0.1 per cent and mid size banks to post 1.9 per cent growth.

According to the report, HDFC Bank and Kotak Mahindra Bank are likely to witness a steady NIM growth. 

Also read: FMCG cos may report low-to-mid single-digit volume growth in Q4

Among private banks, HDFC Bank is expected to report strong deposit growth 5% QoQ; however, the composition in the form of retail and others will need to be monitored. Whereas, Axis Bank is expected 3.5-4% QoQ growth in loanbook, broadly in line with frontline peer banks; however, the base effect will play out in YoY terms. 

Among PSU banks, State Bank of India is expected to post a strong loan growth of >16% YoY, largely supported by growth in retail and SME segments. We expect NIIM to be steady which will drive NII growth. AU Small Finance Bank is expected to witness a sustained strong business momentum on loan and deposit growth.

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Published: 06 Apr 2024, 10:10 AM IST