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Nifty Private Bank index down 2%, hits 7-month low; Axis hits 52-week low

At 02:05 PM, the Nifty Private Bank index was the top loser among financial sector indices, down 2.4 per cent as compared to 0.52 per cent decline in the Nifty 50

Nifty Private Bank index down 2%, hits 7-month low; Axis hits 52-week low

SI Reporter Mumbai

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Banking shares, mainly private sector lenders, were under pressure in trade on Friday. The Nifty Private Bank index fell 2 per cent today, hitting a seven-month low on the National Stock Exchange (NSE) in intra-day trade, after Axis Bank reported a subdued performance for the December 2024 (Q3FY25) quarter.
 
At 02:05 PM, the Nifty Private Bank index was the top loser among financial sector indices, down 2.4 per cent as compared to 0.52 per cent decline in the Nifty 50. The Nifty Bank and Nifty PSU Bank indices, meanwhile, were down 1.7 per cent and 0.44 per cent, respectively.
 
 
Axis Bank, Kotak Mahindra Bank, ICICI Bank, RBL Bank, and Federal Bank declined over 2 per cent each; while HDFC Bank and IndusInd Bank were 1 per cent lower.
 
Individualy, Axis Bank share price hit a fresh 52-week low of Rs 974.60, falling 6 per cent on the NSE in the intraday trade after the private sector bank reported fresh slippages of Rs 5,432 crore for Q3FY25, up 46 per cent year-on-year (Y-o-Y) and 22.25 per cent quarter-on-quarter (Q-o-Q). This included Rs 4,923 crore from the retail portfolio; Rs 215 crore from SME (small and medium enterprise) business; and Rs 294 crore from wholesale business.  
 
It also saw worsening of asset quality during the recently concluded quarter with gross non-performing asset (GNPA) ratio at 1.46 per cent as against 1.44 per cent at the end of the September quarter. Net NPA ratio, too, rose to 0.35 per cent from 0.34 per cent in Q2FY25.
 
Provisions continued to remain elevated at Rs 2,204 crore, impacting earnings momentum. Profit after tax came in at Rs 6,304 crore, registering a 4 per cent Y-o-Y rise but a 9 per cent Q-o-Q decline.
 
Calibration in growth amid delinquencies in unsecured retail segment impacted growth as well as earnings. Continued pain in personal loans and credit cards along with seasonal slippage from agri segment kept overall delinquencies elevated. There is no clear visibility on the turning of the asset quality cycle. However, recent decline in valuation seems to factor near-term concerns, ICICI Securities said.
 
The sequential decline was primarily driven by slower other income growth and a reversal of mark-to-market (MTM) gains booked in the previous quarter. Net interest income (NII) growth was muted and came 1.3 per cent below our estimates (mainly from loans). Operating expenses were down 5 per cent sequentially and cushioned some of the impact, added analysts at BNP Paribas.
 
Given Axis Bank's high and prompt earnings elasticity to short-term borrowing costs and reasonable valuation (1.6x NTM P/B), Axis Bank remains our 'smart-beta' pick. The key risk of 'Higher for longer' interest rates remains, especially if rate cuts are delayed till mid-CY25, the brokerage firm said in its result update.
 
Meanwhile, HDFC Bank is schedule to announce Q3 results on January 22, 2025 and ICICI Bank will declare Q3 earnings on January 25.
 
According to Nuvama Wealth Management, Q3FY25 has been a tough quarter for banks with higher credit cost, decelerating loan growth, shortage of deposits even amidst slowing loan growth, moderate pressure on net interest margin (NIM) and lower trading gains. Asset quality is the overwhelming theme.
 
"Microfinance institutions (MFI) and unsecured loans continue to see elevated stress. HDFC Bank, ICICI Bank, Federal Bank, and public sector banks are likely to face less stress while MFI lenders would see a sharp deterioration," the brokerage firm said in its Q3FY25 earnings preview report.
 
With the last fortnightly loan and deposit growth print in Q3FY25 coming in at 11.5 per cent, tight liquidity (especially in December 2024) curtailed balance sheet expansion for most banks (borne out in most pre-quarterly disclosures). Analysts at BNP Paribas, thus, expect the sequential stability or small erosion in margins to continue in Q3FY25 as FD back-books have nearly repriced to incremental levels, limiting upward pressures on cost of funds.
 
Although operating costs are not a headwind, the brokerage firm expects credit costs to inch up a little (especially Y-o-Y), limiting earnings growth to low-to mid-single digits for most large banks.
 
"Given the dependence of both growth and margin outlook on timing and depth of rate cuts, we expect most management commentaries in large banks to be pre-conditioned to the timing of policy easing. Easing does bottom out margins initially for most banks, but also creates the stage for credit and CASA acceleration and gradual margin expansion, in our view," BNP Paribas said in a sector update report.
 

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First Published: Jan 17 2025 | 3:15 PM IST

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