Banks Q4 Results Preview: Private Lenders To Shine Amid Margin Pressure; ICICI & Kotak May Lead The Pack

It is anticipated that the Indian banking industry will have a poor quarter in Q4FY25 as core earnings decline as a result of slower loan growth, NIM pressure from ongoing funding cost strain, the effect of interest income reversal and changing rate charts, and more slippages. Numerous brokerage reports predict that core profitability for the banks they cover would decline, with private sector banks emerging as relative outperformers in the face of persistent margin pressures and growing operational expenses.

According to InCred Research Services, margin impact owing to repo rate cuts will be sporadic & partly offset by benefits from CRR cut & MCLR repricing.

"Asset quality will hold up well for large private as well as SOE banks. Mid-sized banks with MFI exposure will witness elevated delinquencies/credit costs. System loan/deposit YoY growth was broadly steady at 11%/10% vs. the previous quarter. Key thing to watch out for is the outlook on volume growth," said the brokerage.

"We continue to prefer large private sector banks with a strong liability franchise and levers to offset margin compression. Valuations are also at reasonable levels and can offer a rerating with an improving liquidity environment. We have an ADD rating on HDFC Bank, ICICI Bank and Axis Bank and maintain our HOLD rating on IndusInd Bank. SOE banks can surprise positively in 4Q by reporting treasury gains (after the G-Sec yield decline of ~20bp during the Mar 2025 quarter - a part of which will be booked in AFS reserves) and strong recovery from written-off accounts. Over the next few years, we expect SOE banks' RoE to decline, mainly led by margin compression/lower non-core income while there are limited offsets to core profitability. Any material rerating will hinge on volume growth and margin outcomes. The risk-reward ratio appears balanced at current valuations of State Bank of India, Bank of Baroda and Bank of India. We have an ADD rating on Punjab National Bank and Canara Bank as they appear attractive on the valuation front and are tactical plays," said the research analysts of InCred Research Services.

As per the research analysts of ICICI Securities "After a strong ~15% CAGR between FY20-22, systemic savings balances' pace has been rather tempered - a soft 56% CAGR; the SA ratio has consequently retreated to ~29%, as of Q3FY25. Broad calculations suggest that lower SA ratio has dented NIM by 10-25bps in the current cycle. However, in quarters to come, a likely shrinking of the rate differential vs. term deposits (TD) may provide a fillip to savings growth. After its 50bps cut in the last 6 months, Kotak's savings rate is now similar to large peers. SBI's SA rate remains static at 2.7%. That said, SBI's SA rate is not the lowest; smaller private banks such as DCB, CUBK, SIB and KVB's SA offerings are in the range 1.75-2.25% - seemingly, without any material hit on growth. Should SBI, or large private banks, indulge in SA rate cuts, it could usher in a larger rate reset and cushion impact on NIM due to moderating EBLR yields. We highlight that share of savings balances as a proportion to EBLR loans is higher for PSU banks (vs. private peers)."

Axis Bank Q4 Result Preview

PL Capital estimates that the bank's loan growth might be 2.7% QoQ, NIM will drop 3bps QoQ to 3.91%, and PPoP will probably rise QoQ as a result of higher NII and other income. Costs of provision will increase by 7bps QoQ.

HDFC Bank Q4 Result Preview

According to PL Capital, the bank's emphasis on LDR would make loans softer than deposit growth, which would be 4.0% QoQ. QoQ, NII may increase by 3.2%. Since a higher cash position will balance out a lower cost and a gain in yield, margins may stay constant at 3.57%. Higher NII might result in a 4.4% improvement in HDFC Bank's PPoP, while aging and sound accounting practices could cause other income and provisions to rise by 3.7%. The bank's GNPAs could remain relatively constant at 1.43%, according to PL Capital.

Axis Securities claims that while HDFC Bank's margins are expected to fall somewhat on a quarterly basis, the bank's deposit growth is superior to its loan growth, LDR is improving, and credit growth is substantially below sector growth. Slippages at the bank will continue to be overseen, and asset quality will stay steady.

ICICI Bank Q4 Result Preview

According to PL Capital, NII may expand by 3.2% QoQ, while ICICI Bank's loan growth pace is expected to continue and come in at 2.9%. According to the brokerage, the bank's margin may drop by 5 basis points as a result of the increase in CoFs, while yields would stay the same. Meanwhile, GNPAs are expected to improve by 2 basis points on a quarterly basis, but credit costs might rise by 3 basis points.

Axis Securities predicts that ICICI Bank's business growth will continue to be robust, that LDR will be steady, and that margins will move negatively. According to the brokerage, there won't be any significant issues with asset quality, credit costs will continue to be under control, and the bank's Opex growth will be moderate while PPOP growth stays stable.

Kotak Mahindra Bank Q4 Result Preview

According to PL Capital, the bank's loan growth is expected to be 3% QoQ, while margins may drop 9bps QoQ to 4.91% as a result of declining yields that are somewhat offset by declining financing costs. Higher NII and other income might cause PAT to climb QoQ by 9.3%, but the bank's asset quality could worsen as GNPAs rise by 3bps QoQ and credit costs fall by 12bps QoQ, according to the brokerage.

According to Axis Securities, Kotak Mahindra Bank's business growth momentum is anticipated to continue to be robust, with secured portfolios driving growth and margins seeing a minor contraction. According to the brokerage, the bank's PPOP growth is expected to be robust, bolstered by good non-interest income growth and mild Opex growth, while asset quality is expected to stay mostly unchanged.

SBI Q4 Result Preview

According to PL Capital, SBI's NII would rise 2.3% on a quarterly basis, while loan growth is expected to be 4.5% and margins may decline somewhat over time. The bank's PPoP will drop 3.1% QoQ due to an increase in opex, while provisions are anticipated to normalize in Q4FY25, causing PAT to drop by 11.0% QoQ. Asset quality, as measured by GNPA, will improve by 11 bps, while credit costs will rise by 15 bps, according to PL Capital.

Axis Securities predicts that SBI's advances and deposits will continue to expand at a robust rate, outpacing systemic growth, while NII growth is expected to be about 3% QoQ, and NIMs will probably fall slightly QoQ. According to Axis Sec, SBI's PPOP growth would continue to be robust sequentially due to improving non-interest income and Opex ratios, while credit costs will normalize and asset quality will somewhat improve.

Bank of Baroda Q4 Result Preview

BoB's NII might increase by 2.8% QoQ, according to PL Capital, while loan growth would be 4.9% QoQ and margins could drop by 4bps to 2.87% as a result of declining yields. According to PL Capital, the bank's PAT may drop precipitously as a result of provisions returning to normalized levels, while GNPA may improve by 14 basis points on a quarterly basis and credit costs may rise by 16 basis points.

According to Axis Securities, BoB's advances and deposit growth are in pace with market development; there is little chance of improving LDR, and NIM compression is anticipated; NII growth is flat. According to Axis Sec., BoB's opex growth will continue to be controlled, the C-I Ratio will stay constant QoQ, asset quality is probably going to improve a little, and credit costs will continue to be kept under control.

Top Picks By PL Capital

"Banks under our coverage are expected to witness a weak quarter as core earnings could fall by 4.4% QoQ to Rs592bn (vs -1.6% QoQ in Q3FY25) largely due to IIB and PSU pack. Loan/deposit growth is expected at +3.7%/+4.6% QoQ (+2.6%/+1.6% in Q3FY25) as Q4 is seasonally strong. LDR may fall QoQ by 69bps to 83.6%. NIM may fall by 8bps QoQ at 3.32% (fall of 7bps in Q3FY25) due to repo rate cut of 25bps in Feb'25. Large private banks (ex-IIB) may see better NIM movement," the brokerage said.

"Due to seasonality in case of PSU banks, fees might grow at 11.4% QoQ, to Rs429.7bn (vs -1.3% in Q3FY25), which would be more than offset by rise in opex to Rs971bn (+7.2% QoQ). Core PPoP may be Rs944bn (-0.7% QoQ). Large private banks (ex-IIB) may outperform on core PPoP. Gross slippage ratio might improve slightly post elevated agri slippage in Q3FY25. Banks' PAT is expected to decrease by 5.7% QoQ to Rs634.3bn due to lower treasury gains. Among our coverage universe, we prefer ICICIB and KMB," as per Prabhudas Lilladher.

Bank Earnings Preview: Caution Ahead In Q4FY25

"While Q4 has been a traditionally strong quarter, we expect Q4FY25 to be not as strong. Banks are likely to post mixed trends with softer undertone. Earnings will likely be characterized by: 1) softer loan growth but with better QoQ growth and similar deposit growth, 2) NIM pressure with sustained funding cost strain, impact of turning rate tables and interest income reversal for a few, 3) higher slippages in unsecured & MFI, and 4) better recovery trends (some larger assets got resolved) as also a change in regulations, which may benefit credit cost. In a nutshell, credit cost should see benefits, but we expect outliers as well. While we expect earnings to be resilient for most frontline private banks, we see softer earnings for a few private and mid-sized banks," said the research analysts of Elara Capital.

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