The gap between private sector banks (PVBs) and public sector banks (PSBs) is narrowing, but Bernstein sees little evidence yet of a decisive reversal in favour of private lenders. In its latest India Financials report, Bernstein said convergence in growth is underway, with private banks mounting a comeback even as PSBs continue to show resilience in margins, profitability and asset quality.
The brokerage said PVBs have narrowed their loan-growth gap with PSBs to around 1 percentage point, from a peak of 4 percentage points. The improvement has been driven by a recovery in corporate lending and sustained deposit traction. At the same time, PSB deposit growth has weakened relative to private banks, although CASA growth remains broadly comparable.
Stock Calls
Among its stock coverage, HDFC Bank is its top upside call, with a target of Rs 1,150 versus the Aug 25 closing price of Rs 727, implying nearly 58% upside. Axis Bank has a target of Rs 1,600 against Rs 1,235, implying around 29% upside, while ICICI Bank at Rs 1,800 versus Rs 1,422 offers about 27% upside.
SBI, with a Rs 1,300 target against Rs 1,048, has roughly 25% upside, while Kotak Mahindra Bank has around 25% upside to its Rs 500 target from Rs 401.60. IndusInd Bank is the outlier, with Bernstein's Rs 1,000 target below its Rs 1,015 closing price, implying around 2% downside.
Public Sector Banks Continue To Benefit
PSBs continue to benefit from stronger net interest income growth and superior spread performance. Bernstein noted that stronger higher-yielding retail lending has helped PSBs deliver better margin outcomes despite their greater reliance on borrowings.
This resilience has translated into profitability. PSBs have continued to outperform PVBs on profitability, supported by stronger NII growth and margin performance, resulting in sequential return-on-assets expansion.
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