Banking Q1 Results Review - Strong NII, PAT Growth On YoY Basis But Sharp Deceleration QoQ: ICICI Securities

ICICI Securities Report

Q1 FY24 has been an interesting quarter with steady and strong balance sheet metrics, continued comfortable asset quality behaviour and strong growth in profitability metrics such as net interest income, pre-provision operating profit and net profit on YoY basis.

However, as re-pricing of deposits is now catching-up, there has been trend reversals on net interest margin front, which, along with rise in opex, resulted in sharp deceleration on NII / PPOP and PAT on QoQ basis. NII/PPOP/PAT for private banks grew strongly at ~26/32/36 % YoY.

However, QoQ growth was muted at just -1 to 2% range, as NIMs have started reversing while opex is continuing at a higher pace.

As asset quality remains comfortable, the outcomes on NIMs and growth are the key drivers for stock price movement, in our view.

We expect cost of deposits to stay firm in the near term, leading to further moderation in NIM for most banks, keeping earnings growth muted on QoQ basis.

The bank-wise outcome is dependent on individual bank’s loan mix, growth drivers, share of marginal cost of funds based lending rate/ external benchmark based lending rate book, liability mix, current account and savings account, retail deposits, liquidity etc.

Despite some softness in earnings (partly due to higher base as well), headline return on assets /return on equities are still strong and much better than historical 3/5/10 years average for most banks. Strong RoEs should translate to superior book value compounding without much incremental risks as systemic asset quality is likely to remain benign. Systemic loan growth is holding up reasonably well and much better versus pre-Covid levels.

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