ICICI Bank, SBI among top banking sector pics by Axis Securities

The Q1 results of the banking sector was marked by robust loan growth, stable net interest margins (NIM), profitability at multi-year high and stronger asset quality.

After a strong show on NIMs in FY23, pressures on margins surfaced in Q1FY24, driven by sharp increase in cost of funds. 

Analysts at Axis Securities believe a similar trend on margins is likely to continue in the coming quarters. However, for most banks (excluding Small Finance Banks), the brokerage firm expects FY24 NIMs to remain broadly similar or only marginally lower versus FY23. 

Also Read: PSU Banks Q1 results update: PNB, SBI lead as lenders on a strong footing, double the bottomline

Credit growth momentum is expected to continue to remain healthy primarily led by retail and SME segments. 

“We believe banks will continue to focus on deposit mobilization, keeping competitive intensity high. Deposit mobilization remains a key lever to support banks’ superior credit growth. Asset Quality will continue to remain healthy. Thus, credit costs trends should not look worrisome in FY24, thereby aiding earnings,” Axis Securities said in a report.

It believes that banks would continue to deliver healthy earnings growth, but the pace would decelerate sharply vis-à-vis FY23.

Here are the top picks by Axis Securities among banks:

ICICI Bank

ICICI Bank has consistently outperformed its peers and has been firing on all cylinders. The private lender has met most criteria in terms of growth, margins, and asset quality and has started FY24 well and Axis Securities expects this momentum to continue.

Despite the moderation owing to a sharp increase in cost of funds, NIMs are expected to remain healthy at 4.5% in FY24 (similar to FY23). 

“Given the ample growth opportunities, the bank will continue to invest in the franchise and strengthen its teams to drive business growth, resulting in slightly higher opex growth. However, the C-I ratio will likely remain stable. Strong asset quality metrics should keep credit costs benign and enable ICICI Bank to deliver a consistent RoA and RoE of 2-2.2% and 17-18% over FY24-25E,” Axis Securities said.

Axis Securities has a ‘Buy’ rating on ICICI Bank and a target price of ₹1,250 per share.

Also Read: Q1 Results Review: Earnings growth continues even as revenue slows; margins rescue

State Bank of India

Amongst PSU banks, SBI with a healthy Provision Coverage Ratio (PCR), adequate capitalization, a strong liability franchise, and an improved asset quality outlook remains the best play of the resilient Indian economy, the brokerage house said.

It expects SBI to continue delivering healthy RoA and RoE of ~1% and 15- 17% over the medium term.

The brokerage house has a ’Buy’ call on SBI with a target price of ₹715 per share.

Federal Bank

Axis Securities believes Federal Bank remains well-positioned to deliver an RoA of 1.3% in FY24, with a gradual improvement expected over the medium term. 

The bank’s healthy levers for achieving ROA are sustained business growth, improving mix of high-yield products in the portfolio supporting margins, strengthening the core fee income profile (the bank expects a fee/total asset ratio of 1%), and favourable credit costs supported by high asset quality, it said.

The brokerage has a ‘Buy’ rating on the stock with a target price of ₹160 per share.

Also Read: Why HDFC Bank Stock Could Be a Sell

Ujjivan Small Finance Bank

Ujjivan Small Finance Bank remains well positioned to deliver a healthy advances growth of 25% CAGR over FY23-25E with strong growth levers across segments.

Axis Securities has a ‘Buy’ call on the stock and target of ₹54 per share.

Also Ree

It said that although CoF has not yet peaked, NIMs are expected to be maintained at 9%+ in FY24, supported by the availability of loans repricing opportunities. Short-term C-I ratios will likely remain inflated, but starting in FY25, cost ratios are expected to decline by ~300-350 bps annually over the next 2-3 years. 

Given strong asset quality trends, credit costs are expected to be below 100 basis points in FY24. On a steady state basis, the bank will look to deliver RoA of 2.5%+, Axis Securities said.

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 taking any investment decisions.

Updated: 22 Aug 2023, 02:11 PM IST