Macquarie Capital's Q3FY24 expectations for banks and NBFCs
Macquaire anticipates a challenging third quarter for all banks with year-on-year numbers expected to be adversely affected by upward deposit pricing.
Suresh Ganapathy, Banking Analyst at Macquarie Capital predicts further margin compression and challenges for Indian financial institutions in the third quarter (October-December) of the current financial year.
“Because last year, Q3 is when the bulk of deposit rate hikes happened in a big way, so considering usually most of the deposits comes in the 12-month category you would see deposit costs further inching up in Q3 and margin should come down across the board,” he said in a conversation with CNBC-TV18.
Ganapathy expects a muted performance for HDFC Bank for the third quarter. He explained that the Street was expecting that the incremental cash reserve ratio (ICRR) impact, which was felt in the second quarter could get reversed. While it will get reversed in the third quarter, there is still an upward deposit repricing.
So margins will not necessarily pick up or maybe even see slight downward bias in the third quarter, which will be a disappointment for .
Read Here | RBI Financial Stability Report: Banks fare well in stress test, NBFCs show some weakness
Ganapathy suggests that for HDFC Bank's stock to perform well, there is a need for margin improvement and a flow-through of core pre-provision operating profit (PPOP) growth. Any failure in these aspects during the quarter may disappoint the market and affect the stock's performance negatively.
The analyst predicts a challenging quarter for all banks, with year-on-year numbers expected to be adversely affected by upward deposit pricing. For ICICI Bank, he anticipates a hit on its PPOP growth due to margin compression.
The brokerage recently downgraded State Bank of India (SBI) and Bank of Baroda, citing weakened corporate recoveries and an inevitable decline in margins due to the falling rate cycle. This leads to a projection of downward pressure on Return on Assets (ROA) over the next two years for public sector banks.
He also highlighted the Reserve Bank of India's (RBI) unease with banks' credit growth toward Non-Banking Financial Companies (NBFCs), which has been running at 30%. He anticipates a gradual reduction in loan growth for NBFCs over the next six months due to supply-related constraints from the banking system.
(Edited by : Shweta Mungre)
First Published: Jan 12, 2024 2:14 PM IST
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