Indian banks to report 13-14% net profit growth in Q4FY24, say analysts

Banks

Indian banks are likely to report a 13-14 percent growth in their net profit in the fourth quarter of the of 2023-24 over the same quarter a year ago, according to independent analysts and brokerage firms. This is on the back of asset quality remaining stable in the reporting quarter, analysts said.

However, they add that some banks may report a decline in net profit on a quarterly basis due to pressures on margins amid higher funding costs.

“Net profit growth for Public Sector Banks (PSBs) is likely to be better at 15 percent on-year versus 6 percent for Private Banks (PVBs),” Emkay Global Financial Services said in a report.

Also read: Banks may increase deposit rates by 15-20 bps in FY25, says ICRA

That said, net interest margins (NIMs) for a clutch of lenders are expected to compress due to rising funding costs against the backdrop of greater competition for deposits among banks, industry experts said.

As per a Motilal Oswal Financial Services report, the NIMs of ICICI Bank, Axis Bank and Kotak Mahindra Bank may see a moderation of 7-11 basis points (bps). One basis point is one-hundredth of a percentage point.

The report added that the brokerage expects NIMs for HDFC Bank, State Bank of India and Union Bank of India to remain flat in the reporting quarter. AU Small Finance Bank is expected to see a substantial moderation in NIMs.

Deposit and credit growth

Provisional data from banks showed deposit growth was more robust than credit growth. For example, RBL Bank reported a deposit growth of 22 percent versus credit growth of 19 percent on a year-on-year basis. YES Bank reported a deposit growth of 22.5 percent against a credit growth of 14.1 percent. HDFC Bank’s sequential numbers showed a deposit growth of 7.5 percent compared to its credit growth of 1.6 percent.

PSBs fared better on the credit growth to deposit growth metric. Bank of Baroda (BoB) reported a credit growth of 12.41 percent and a deposit growth of 10.24 percent. Punjab National Bank’s annualised credit and deposit growth stood at 11.5 percent and 7 percent, respectively.

In what could spell bad news for lenders, ratings agency ICRA in a webinar on April 10 said that credit growth is expected to moderate in 2024-25. “Credit growth and profitability should moderate and credit to retail and NBFCs (non-banking financial companies) is likely to moderate in FY25,” said Sachin Sachdeva, vice-president, financial sector, ICRA.

Motilal Oswal in a report said that the difference between deposit and credit growth is narrowing.

Also read: Banks report robust deposit growth compared to slow credit growth in Q4

“Credit growth has been robust and deposit growth too has gathered pace on the back of aggressive competition, a push for deposits, and competitive TD (term deposit) rates offered by banks. As a result, the gap between credit and deposits has narrowed to about 3.4 percent in March 2024,” the brokerage said in its report.

Asset quality 

In the past few months, Indian banks reported their lowest asset quality deterioration. For example, in the October-December quarter of FY24, State Bank of India’s gross non-performing asset (GNPA) ratio improved to 2.76 percent from 3.52 percent on-year. Its net NPA (NNPA) ratio for the July-September FY24 quarter came in at 0.64 percent compared with 0.8 percent last year.

BoB’s GNPA ratio for the third quarter stood at 3.32 percent, improving from 5.31 percent, while the NNPA ratio declined to 1.16 percent from 0.76 percent.

Overall, ICRA's Sachdeva highlighted that in Q4, asset quality of banks is expected to improve. “We expect banks to report a GNPA of around 2.1 to 2.5 percent and NNPA of 0.5 to 0.6 percent by March FY25,” he said.

Treasury income

In the fourth quarter of  2023-24, banks are likely to report healthy treasury gains due to moderation in government bond yields and a strong capital market, experts said.

“Another significant focus area lies in monitoring the traction in fee income and treasury performance, particularly amid buoyant capital markets and a moderation in bond yields,” Motilal Oswal said in the report.

Brokerage firm Prabhudas Lilladhar said Kotak Mahindra Bank’s earnings could increase by 10 percent on-quarter, due to higher treasury gains on a quarterly basis.

In Q4FY24, the yield on government securities, especially the 10-year benchmark bond, eased around 10-12 bps after the heavy demand seen from long-term domestic as well as overseas investors. Demand from the latter was driven by the announcement that Indian bonds were to be included in global bond indices.

According to Bloomberg data, the 10-year benchmark bond yield was trading at 7.056 percent as on March 30, compared to 7.174 percent as on December 30, 2023.