Sharekhan prefers SBI in PSU Banking space while HDFC Bank, ICICI Bank in Private Banking space

SBI vs HDFC Bank vs ICICI Bank: Q3 FY21 was a strong quarter with most banks reporting positive earnings and an improving outlook on growth and asset quality. Private Banks’ like HDFC Bank and ICICI Bank advances grew faster than the system and resulted in continued market share gains. Coupled with strong deposit growth, notably low-cost CASA deposits, reduced cost of funds and led to better margins.

Private Banks’ like HDFC Bank and ICICI Bank advances grew faster than the system and resulted in continued market share gains: Reuters

SBI vs HDFC Bank vs ICICI Bank: Q3 FY21 was a strong quarter with most banks reporting positive earnings and an improving outlook on growth and asset quality. Private Banks’ like HDFC Bank and ICICI Bank advances grew faster than the system and resulted in continued market share gains. Coupled with strong deposit growth, notably low-cost CASA deposits, reduced cost of funds and led to better margins. The current share price of SBI is Rs 413, up Rs 11 or 2.7%, the current share price of ICICI Bank is trading flat at Rs 658, current share price of HDFC Bank is Rs 1610, down Rs 16 or 1%.

Leaders in Q3 FY21:

SBI, HDFC Bank, ICICI Bank, Axis Bank, Kotak Bank, and Federal Bank

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Laggards in Q3 FY21:

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PNB and Bank of India

Preferred Picks:

Private Banks:

ICICI Bank, HDFC Bank, Kotak Mahindra Bank, AU Small Finance Bank;

PSU Banks:

SBI

With the recent spate of capital raising and strengthening of balance sheet, the management commentary focused on reverting back to advances growth in FY2022 and normalisation of credit costs (asset quality related write-offs) from Q1FY2022.

PSU banks like the State Bank of India (SBI) too posted decent earnings, but advances growth remained tepid due to capital constraints and credit cost is also at elevated levels. SBI, was easily the best performer among PSU banks and not only continued to see improved asset quality performance, but also gained market share on the advances front.

PSU banks like SBI and micro-lenders reported a higher restructured book, but still largely within manageable range. Gap of proforma versus reported GNPAs was higher for PSU banks and small-ticket / micro-loan players. Sharekhan expects PSBs’ margins to be range bound due to the credit cost outlook yet to regain clarity and growth outlook is still weak. However, any progress on recoveries from IBC/NCLT would be a re-rating trigger going ahead.

Sharekhan believes that low interest rates, recovery in economic activity are potent positives for the financial sector. Sharekhan prefers structurally strong players with high capitalisation and robust book quality. The earlier apprehensions regarding an unwieldy restructuring pipeline were ameliorated through proactive provisions and improving collections and Sharekhan believes that asset quality outlook has improved for the banking sector.

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