Despite a notable decline in their share prices this year, major Indian private sector banks are showing robust underlying business growth ahead of their second-quarter (Q2) earnings announcements. The BSE Bankex, an index tracking banking stocks, has dropped nearly 8% year-to-date, with individual lenders like HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank experiencing share price falls of up to 29%.
Banking Sector Performance Overview
Pre-quarter updates from these banks indicate healthy expansion in both loans and deposits. This growth reflects a buoyant core business performance, further boosted by the FCNR-B (Foreign Currency Non-Resident - Bank) deposit raising initiatives. Analysts at Jefferies note that while adjusted deposit growth might appear softer due to banks using FCNR-B funds to replace more expensive funding, the overall funding mix has improved in terms of cost efficiency and quality.
Analyst Outlook on Leading Private Banks
Brokerage firm Jefferies has provided a positive outlook on several key private sector banks, maintaining 'buy' calls with specific price targets.
HDFC Bank
India's largest private sector lender, HDFC Bank, reported strong Q2 growth. Loans increased by 16% year-on-year, deposits by 19%, and CASA (Current Account Savings Account) deposits grew by 11%. Jefferies has set a price target of Rs 880 for HDFC Bank.
ICICI Bank
The country's second-largest private sector lender, ICICI Bank, also holds a 'buy' rating from Jefferies, with a price target of Rs 1750.
Axis Bank
Axis Bank demonstrated accelerated growth in Q2, with loans rising 23% year-on-year, deposits by 21%, and average CASA by 14%. This marks an improvement from the previous quarter's figures. The bank's Loan-to-Deposit Ratio (LDR) stood at 95%. Jefferies has a price target of Rs 1700 for Axis Bank.
Kotak Mahindra Bank
Kotak Mahindra Bank reported a sharp acceleration in its Q2 performance. Loans surged 25% year-on-year, deposits grew 23%, and CASA increased 11%. These figures represent significant jumps compared to the prior quarter. The bank's LDR was 89%, with reported numbers benefiting from $5.8 billion in FCNR-B deposits, of which $1.7 billion was channeled into loans. Jefferies maintains a price target of Rs 460.
IndusInd Bank
IndusInd Bank showed notable improvement in operating trends during Q2. Loans grew 11% year-on-year, deposits by 10%, and CASA also by 10%. Retail deposits expanded 16% year-on-year, and the LDR stood at 84%. Jefferies has a 'buy' call with a price target of Rs 1250.