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The brokerage firm has an ‘add’ rating on SBI and HDFC Bank stocks with a target price of Rs 1,000 and Rs 2,000 respectively, stating that HDFC Bank trades at an attractive risk-reward ratio amid the growth granularity & pricing power while SBI is preferred because of the diversity in its growth and as improving retail franchise will command a valuation premium.
“We have been highlighting the risk of a decline in bank margins amid repricing of deposits at higher rates as well as limited scope for a further rise in yields. We also expect a limited improvement in credit costs from here on, as the best of the asset quality cycle is already behind. This will ensure a gradual decline in RoA of banks and would be weighing over valuations. We should see a consolidation phase for stock prices in the banking sector till the margins improve,” stated a report by InCred Equities.
Also read: Don't see end of bull market cycle in India for next few years: Ridham Desai
Going ahead, InCred expects banks to see a surge in deposit costs by 30-50 bps with stagnant yields (being benchmarked to external rates), which will lead also to banks’ NIM compressing by 25-50 bps in FY25F.
Further, with the retail loan growth accelerating, it is also expected that the share of retail loans to total credit will improve to 34% by FY25F against 32% currently.
“Bulk deposits of most large banks grew by ~2-13% qoq while retail deposits grew by ~2-5% qoq in 4QFY24. The recent increase in limits for bulk deposits by the Reserve Bank of India (RBI) will provide further comfort to banks while negotiating rates,” says Jignesh Shial of InCred Equities.
The domestic brokerage firm also stated that the bank managements are already adopting various means including driving staff KRAs and incentivizing employees towards higher deposit augmentation and the recent branch expansion of most banks in semi-urban/rural areas will drive the CASA deposits momentum. Thus, it is expected that the deposit growth will beat credit growth in FY25F.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price