Q1 results preview: ICICI Bank, SBI other banks to report strong earnings, says Morgan Stanley; here’s why

According to the brokerage’s analysis, ICICI Bank will likely post significant volume growth for both loans and deposits. Given that SoE banks’ margins are declining slowly than private banks’, that their loan costs are lower, that their operating costs are dropping sequentially, and that their treasury profits are larger, they should also record healthy profitability. Considering the high loan growth and reduced credit costs, wholesale funded banks should post strong earnings.

“While margins will start normalising from Q1FY24 (April-June) quarter, strong loan growth/asset quality and improving deposit growth provide an offset. Investor focus will be around competitive intensity on deposits and likely trough levels for Net interest margin (NIMs). ICICI Bank & SoE banks in particular to report strong earnings,” the brokerage said in its report.

Expect another quarter of steady loan growth, improving deposit growth and lower credit costs for Indian banks:

According to the brokerage’s analysis, the retail/SME segment has helped keep system loan growth, which was 15% YoY as of June 16, stable from the previous quarter.

With higher real deposit rates, system deposit growth has increased to 12.1% YoY from 9.6% YoY in the previous quarter and is expected to pick up speed in the upcoming quarters.

“We expect private banks to report strong deposit growth despite a seasonally soft quarter (where the deposit base typically declines on a QoQ basis),” added the brokerage.

NIMs will start to normalise this quarter:

Over the next two to three quarters, banks will witness a deposit rate catchup, which will cause NIM to normalise. Due to quicker loan repricing over the past year, NIMs have increased significantly.

“We continue to believe that margins remain above historical levels given a) reduction in excess liquidity, b)higher value for CASA deposits (which largely don’t reprice upwards in a rising rate cycle), c) shift towards relatively higher-margin loans (better macro conditions drive improved risk appetite – which is absent when the macro climate is weak),and d) lower slippages driving lower interest income reversals,” the brokerage said. 

For Q1FY24, expect most banks to see 5-20 basis points margin contraction:

Due to the repricing of MCLR-linked loans (of which SoE banks hold a larger share), margin contraction at SoE banks will be less severe this quarter. Wholesale funded banks like IndusInd, RBL, and IDFC would report essentially flat margins from one quarter to the next.

Overall, the brokerage anticipates healthy return on assets (RoAs) that would first exceed normalised levels before returning to normal in FY25.

Updated: 12 Jul 2023, 02:17 PM IST