Private banks to post 23% PAT growth in Q4FY13: Angel

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26 Aug, 2025 12:21

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Angel Broking has come with its March`13 quarterly earning estimates for banking sector. The research firm expects private banks to report healthy earnings growth of 23.0 percent yoy, however, the PSU banks with expected earnings decline of 13.1 percent yoy, would drag the overall earnings performance (de-growth of 3.2 percent yoy).

Banking stocks underperformed broader markets, on expectation of slower downward movement in interest rates-  Banking stocks under our coverage underperformed the broader market during 4QFY2013, with almost all of them (barring few private banks) registering a sequential decline of more than 10 percent. At the beginning of the quarter, the banking stocks continued to rally on hopes of aggressive policy rate cuts. The RBI reduced rates by 50bp during the quarter, however, it reiterated that the room for further monetary easing remains limited, thereby clearly indicating that the downward movement in interest rates would be slower than earlier expected. At the shorter end of the interest rate curve, the three-month CD and CP rates have inched up slightly sequentially, reflecting the tight liquidity situation. Even at the longer end of the yield curve, many banks have recently increased their peak retail term deposit rates, which is likely to put slight pressure on margins, which are already weighed down by asset quality concerns.

Overall, we expect private banks to report healthy earnings growth of 23.0 percent yoy, however, the PSU banks with expected earnings decline of 13.1 percent yoy, would drag the overall earnings performance (de-growth of 3.2 percent yoy). Within private banks, while the new private banks are expected to perform strongly with earnings growth of 24.6 percent, the older private banks are expected to post flat bottom-line performance. Dissecting the PSU banks’ performance, while the mid ones are expected to report marginal earnings growth of 2.6 percent yoy, the larger ones are expected to report bottom-line decline of 18.5 percent yoy.

Outlook and valuation- Decelerating economic growth environment, policy woes in select sectors and elevated inflation and interest rates point towards continued economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the near-term. Hence, we prefer private banks, given their favorable cyclical and structural outlook, with Axis Bank and ICICI Bank being our top picks. But with the risk of higher competitive intensity in light of higher number of likely new entrants, the upsides are expected to be relatively moderate than estimated earlier. Also, a higher number of likely new entrants in the sector, create a structural impediment for PSU banks' medium-term re-rating, as we expect them to lose market share in any case, considering their capital crunch. However, due to expectations of slower downward movement in interest rates, PSU banks are currently trading at depressed valuations.

Upsides in these stocks would largely depend on an eventual economy turn-around, which would lead to lower re-pricing of high-cost deposits (relative benefit for low-CASA banks) and higher recoveries (relative benefit for banks that have experienced maximum asset quality pain, and importantly, also provided for it already). Screening for these criteria, as well as Tier-1 capital adequacy and trailing adjusted valuations, in our view, PSU banks that would stand to gain the most from an eventual turn-around include SBI and PNB among the large-caps and United Bank, Indian Overseas Bank, Corporation Bank and Indian Bank among the mid-caps.

(Rs- Cr)

Company	Operating Income		Net Profit		Reco.
	4QFY13E	% chg	4QFY13E	% chg
Axis Bank	4,494	20.4	1,521	19.1	Buy
HDFC Bank	6,002	23	1,892	30.2	Neutral
ICICI Bank	6,063	13.7	2,340	23.1	Buy
SIB	456	24.2	136	11.5	Buy
Yes Bank	967	35.3	359	32.1	Buy
BOB	3,794	2.7	1,013	-33.3	Buy
Bank of India	3,428	-1.2	760	-20.3	Accum.
Bank of Maharashtra	1,024	24.8	213	192.6	Accum.
Canara Bank	2,807	-0.1	778	-6.2	Accum.
Central Bank	1,870	10.3	225	-313.7	Accum.
Corporation Bank	1,330	5.8	303	-13.9	Buy
Indian Bank	1,466	5.5	359	3.8	Buy
PNB	5,006	9.2	1,317	-7.5	Buy
SBI	16,510	-2.7	3,359	-17.1	Buy
Syndicate Bank	1,762	7.7	445	43.9	Buy
Union Bank	2,678	1.8	588	-24	Accum.
United Bank	893	4.2	115	-23.2	Buy
HDFC	2,369	21.4	1,549	16.8	Neutral
LIC Housing	495	14.7	274	7.8	Accum.

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