With India Inc having released their Q1FY25 results, the fiscal first quarter earnings season is over now with performance across banks, NBFCs, capital market players and insurance remaining stable and less worrisome. ICICI Securities said, “Credit growth was softer than usual Q1 seasonality due to additional headwinds from muted deposits growth, elevated loan-to-deposit ratio (LDR) and deceleration in unsecured personal loans and NBFC segments.” Credit growth, it added, moderated to around 1.5 per cent sequentially in Q1, which was lower than 2 per cent QoQ in Q1FY24 and 2.9 per cent QoQ in Q1FY23. Deposit growth slowed down to <1 per cent QoQ. It further added that CASA growth remained challenging (in single digit YoY) while term deposits continued to do the heavy lifting.
While private banks posted healthy deposit growth at around 17 per cent YoY, the drag from PSU banks (up <10 per cent YoY) slowed systemic deposits growth to approximately 13 per cent YoY in Q1FY25, stated ICICI Securities.
In another report, Kotak Institutional Equities said that banks under the coverage delivered around 15 per cent YoY earnings growth, led by approximately 10 per cent YoY growth in operating profits and a similar growth in revenues. “Note that the base impact for the sector aggregates is still favorable on account of: 1) merged financials in the case of HDFC Bank and AU SFB and 2) high provisions for bipartite settlement in the past year for PSU banks. We had largely unchanged trends on operating performance with 1) loan growth steady at ~15 per cent YoY (adjusted for the merger), 2) NIM was stable QoQ and seems to be near peak level, 3) slippages had a few seasonal items but showed no material rise in overall levels, and 4) recovery trends are still holding up well for public banks,” it said.
For JM Financial’s banking coverage universe, profits grew by over 10.6 per cent YoY in Q1 (ex-HDFC Bank), with private banks recording +10.6 per cent YoY growth and PSBs at +11.3 per cent YoY growth. “Credit growth (ex-HDFCB) was strong at 14.8 per cent, even as deposit growth lagged at +11.1 per cent YoY. Private banks showed strong credit growth of 16.0 per cent YoY, delicately balanced over a 15.4 per cent deposit growth. Meanwhile, PSBs, with a lower LDR of 75.2 per cent compared to 86.3 per cent for PVBs, reported credit/deposit growth of 13.8 per cent/ 8.9 per cent YoY. With this balanced approach to repricing deposits, average margins of our coverage universe declined by just 3bps,” analysts at JM Financial said.
Meanwhile, NIMs for private and public sector banks declined by 7 bps and 9 bps respectively, and that for SFBs increased by 19 bps. Credit costs, JM Financial said, held up well (+10bps YoY), as PSBs and PVBs saw an improvement of 44bps and 18bps YoY, respectively. However, the brokerage firm expects credit costs to normalise going forward, as some large banks, SFBs and NBFCs have already reported elevated credit costs, emanating from retail, unsecured segments of credit cards, MFI and PLs.
Now, Kotak Institutional Equities said that NBFCs under coverage continued to report strong loan growth with some moderation in disbursements. “Asset quality trends were nearly stable albeit some rise in delinquencies, which may be in line with seasonal trends. NIM compression may be coming closer to an end. In the midst of mixed asset quality trends in the sector, HFCs and gold loans are favored segments,” it added.
Further, in terms of performance from capital markets, Kotak said that AMCs and RTAs posted stronger quarter. “AMCs reported a sequentially stronger quarter led by stronger markets and steady net inflows in equity. AUM growth to revenue growth translation was on expected lines. Revenue yields were supported by stronger equity mix and, in general, were ahead of estimates. RTAs reported stronger non-mutual fund revenue growth,” it said.
Going forward, JM Financial anticipates further moderation in unsecured loans as banks continue to react to regulatory caution and elevating credit costs on these products. “Cost of deposits continues to inch up, and leading banks have further rate hikes over June August. This is likely to weigh on NIMs in CY25, and thus keep NII momentum in check for the sector as a whole. Meanwhile, with lower LDRs, we expect margins for PSBs in our coverage to remain largely stable, and come off as we see rate cuts by the RBI. However, the returns trajectory is likely to remain stable for our coverage,” it stated.