SBI, HDFC Bk, other bank stocks to buy/hold: BNP sees broad-based strength in Q3


Global brokerage BNP Paribas expects the stellar performance on credit costs to continue for the banking sector as asset quality seems to be sustaining, as per management commentary of most banks. The brokerage is not building in any improvement on cost-to-income metrics as it thinks tech investments should remain a priority across the board and spread improvements are not dramatic enough to offset the increased cost.

The brokerage house has ‘Buy’ ratings on Indian banking stocks HDFC Bank with a target price 2,030 apiece, ICICI Bank (TP: 1,070), Axis Bank (TP: 1,130), State Bank of India or SBI (TP: 720), AU Small Finance Bank (TP: 775). Meanwhile, it has ‘Hold’ recommendations on IndusInd Bank (TP: 1,260), Kotak Mahindra Bank (TP: 2,020), and City Union Bank (TP: 172).

“With system deposit growth in high single digits y-y, materially trailing credit growth, we expect most deposit growth within our coverage universe to have come from term deposits rather than CASA. The high-CASA banks took material term deposit rate hikes in the previous quarter — although trailing less prominent names materially — and should see greater mobilisation of term deposits in 3QFY23. We expect a small q-q rise in margins for most banks as loan repricing and asset mix shift more than offset the cost of fund increases,” the note stated.

“Of the banks under our coverage that have made early disclosures on 3QFY23 fundamentals – HDFCB, IIB and AUBANK – none have delivered surprises that necessitate re-evaluation of our sector stance. AUBANK and IIB have shown a strong set of numbers that are marginally ahead of expectations, while HDFC Bank has disappointed a bit on CASA — 1.4% q-q dip in CASA ratio, absolute quantum nearly flat — but a higher-than-expected retail loan growth at 5% y-y is a silver lining,” BNP added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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