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Despite an improvement in NII, the pre-provisioning operating profit (PPOP) and net profit for the sample are expected to decline by over 8% sequentially reflecting a squeeze on net interest margin (NIM). According to Axis Securities, the unabated focus on deposit mobilization has resulted in higher competitive intensity amongst banks. "With continued deposit re-pricing weighing on cost of funds (CoF) coupled with limited loan re-pricing opportunities, we expect banks to continue reporting margin compression in the June quarter," the brokerage mentioned in a preview report.
HDFC Bank is likely to post the steepest fall of 15% sequentially in PPOP at ₹24,875 crore followed by State Bank of India (SBI) which is expected to report nearly 10% drop in PPOP at ₹25,891.6 crore.
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Cost of Funds to Weigh on Bank Nos
On the other hand, PPOP for ICICI Bank and IndusInd Bank may grow by 2.1% and 3.3% to ₹15,350.2 crore and ₹4,160.2 crore respectively. Elara Securities (India) pointed out three factors for NIM pressure including continued repricing on back deposit book, sticky incremental deposit costs, and higher interest income reversal given higher Agri slippages for some banks.
Each of the six banks is likely to report a sequential fall in net profit for the June quarter; the steepest 15.8% drop is likely to be reported by SBI at ₹17,425.1 crore, followed by the 11.5% fall by Kotak Mahindra Bank at ₹3,660 crore.
According to JM Financial Institutional Securities, valuations of banking stocks remain close to long-term averages and banks remain one of the few pockets of value.
“Notwithstanding the valuation argument, we see NII and PPOP growth, and asset quality to be more critical factors for sector re-rating,” said the brokerage in a report. Its key stock picks are ICICI Bank and Axis Bank.
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price