Investors will be watching HDFC Bank and ICICI Bank closely as the lenders prepare to report their September-quarter earnings, with margins, deposit mobilisation, loan growth and asset quality likely to shape their outlook.
Both banks are expected to report year-on-year growth in net interest income and profit, although the pace of earnings growth is likely to differ. ICICI Bank is expected to post stronger profit growth, while HDFC Bank could benefit from improving operating leverage, lower credit costs and a gradual improvement in branch productivity.
The key question for investors is whether the expected earnings growth can support share-price performance amid potential pressure on margins and funding costs.
HDFC Bank Vs ICICI Bank: How Have Shares Performed?
ICICI Bank shares closed 0.55% higher at Rs 1,397 apiece on the NSE, compared with a 0.65% gain in the Nifty 50. The stock has risen 3.1% over the past week and 2.81% over the past month. It is up 4.41% year-to-date but down 1.43% over the past year.
HDFC Bank shares ended 0.28% higher at Rs 728.85 apiece, underperforming the benchmark's daily advance. The stock has gained 3.05% in one week and 1.02% in one month. However, it remains down 26.46% year-to-date and 26.7% over the past year.
READ | ICICI Bank Q2 Preview: Profit Seen Rising 16%, Margins Under Pressure From FCNR(B) Flows
The performance gap makes HDFC Bank a potential recovery candidate if earnings and management commentary improve investor confidence. ICICI Bank, meanwhile, has demonstrated stronger year-to-date share-price performance. However, past returns alone do not determine which stock offers better risk-reward.
ICICI Bank Q2 Preview: Stronger Profit Growth, Margin Pressure
ICICI Bank's net interest income is estimated at Rs 25,166 crore, up 16.89% year-on-year and 3.21% sequentially, compared with Rs 21,529 crore in the year-ago quarter. Net profit is expected to increase 16.24% year-on-year to Rs 14,366 crore from Rs 12,359 crore. However, it is projected to decline 2.97% sequentially. The bank's net interest margin (NIM) is estimated at 4.28%, down eight basis points sequentially from 4.36% and two basis points year-on-year.
Profit before provisions and tax (PPOP) is expected to rise 19.88% year-on-year to Rs 20,737 crore, although sequential growth is estimated at 1.72%.
Three key factors to watch are margin pressure, credit costs and provisioning, and the impact of higher bond yields on treasury income.
Credit and deposit growth are expected to receive support from foreign currency non-resident bank (FCNR(B)) flows. Retail lending could improve, led by rural loans, personal loans and mortgages. However, a higher corporate loan mix and the cost of FCNR deposits could weigh on margins.
READ | HDFC Bank Q2 Preview: Profit Seen Up 6%, NIM Recovery Remains Elusive
Fee income is expected to remain healthy, while treasury gains are likely to be modest. Operating leverage is expected to support profitability.
On asset quality, gross non-performing assets (GNPA) are estimated at 1.39%, compared with 1.38% in the June quarter. Net NPA is expected to remain unchanged at 0.35%.
HDFC Bank Q2 Preview: Improving Operating Leverage In Focus
HDFC Bank's net interest income is estimated to rise 10.91% year-on-year to Rs 34,991 crore from Rs 31,550 crore. This would represent sequential growth of 4.34%. Net profit is projected to increase 5.83% year-on-year to Rs 19,727 crore from Rs 18,640 crore, and 3.5% sequentially. PPOP is estimated at Rs 29,868 crore, up 6.96% year-on-year and 6.04% sequentially.
Unlike ICICI Bank, HDFC Bank's NIM is expected to remain broadly stable. The margin is estimated at 3.27%, compared with 3.26% in the June quarter and the year-ago period.
Investors will focus on the trajectory of margins and lending yields, improvements in the deposit mix, and the strategic growth plan under the bank's new managing director and CEO.
Loan growth is expected to be led by business banking, small and medium enterprises (SMEs), and agriculture. Margins could still face some pressure from FCNR deposit costs.
READ | HDFC Bank Vs ICICI Bank Vs Axis Bank: Here's What To Expect Ahead Of Q2 Earnings
Asset quality is expected to remain stable across retail, SME and corporate lending. Better operating leverage and low credit costs could support earnings, while improved branch productivity is expected to help lower the cost-to-income ratio.
HDFC Bank's GNPA ratio is estimated to improve to 1.14% from 1.17% in the June quarter. NNPA is projected at 0.39%, down from 0.41%.
HDFC Bank Vs ICICI Bank: Which Offers Better Risk-Reward?
The estimates suggest ICICI Bank could deliver faster year-on-year earnings growth, with net profit projected to rise 16.24%, compared with 5.83% for HDFC Bank. Its estimated NIM of 4.28% is also higher than HDFC Bank's 3.27%, although the two banks have different loan and funding profiles.
HDFC Bank, however, is expected to report a stable NIM, sequential growth in profit and improvement in both gross and net NPA ratios. Its significant share-price decline over the past year could draw investors looking for a recovery, but the extent and timing of any rebound remain uncertain.
ICICI Bank's key risks include margin compression, credit costs and weaker-than-expected treasury income. For HDFC Bank, investors will watch deposit mobilisation, the impact of funding costs on margins and whether the bank can translate improving operating leverage into stronger earnings growth.
Ultimately, ICICI Bank's estimates point to stronger projected profit growth, while HDFC Bank's outlook hinges more on a gradual improvement in operating efficiency and continued stability in asset quality.
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