The July-September period (Q2 FY2025) is expected to be soft for banks, with loan growth for almost all companies slowing to around 13% from 17.4% YoY in Q1 FY25. .
The credit deposit (CD) ratio remains high at approximately 79.6%, indicating that stress funds may be available in the future regarding deposit momentum. There are challenges in attracting retail deposits, this time with banks relying more on large deposits for growth, which could weigh negatively on banks’ net interest margins (NIMs).
It is expected that increased slippage and higher credit costs in certain sectors such as microfinance institutions (MFIs), personal loans and credit cards may hurt profitability. As such, the unsecured portion of the lending business can hurt a lender’s profitability.
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The outlook for NIM appears to be trending downwards, with concerns over profitability rising, with several issues such as loan growth, NIM, credit costs, slippage and return on assets (RoA) expected to decline in Q2 FY25. Major indicators are expected to deteriorate.
A key point of discussion is NIM trends. Reliance on large deposits can compress NIM. Retail deposits are a challenge to the system and strategies are needed to foster retail deposit growth.
Credit Risk Management – The focus is on effectively managing slippage and credit costs.
Overall, the outlook for the banking sector in Q2 2025 is shown to be cautious, with several indicators suggesting that profitability and credit quality may also deteriorate.
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State Bank of India’s (SBI) net interest income (NII) is expected to grow by around 4% year-on-year and decline by 0.4% quarter-on-quarter, according to Kotak Securities. Net profit is expected to decline 10% year on year and 24.3% quarter on quarter.
For Bank of Baroda (BoB), Kotak Securities expects NII to grow 9% YoY and 1.5% QoQ, while net profit is expected to decline 7% YoY and 7% QoQ. I’m doing it.
For HDFC Bank, Kotak Securities forecasts NII growth of 10% y-o-y and 0.8% q-o-q, while profitability is expected to increase 2% y-o-y and around 0.4% q-o-q.
For ICICI Bank, NII is expected to grow by 8% YoY and 1.3% QoQ, while net profit is expected to grow by 7% YoY and 0.9% QoQ.
Pranav Gundrapalle, senior India finance analyst at Bernstein, said the numbers for smaller banks are good. However, this number cannot be taken as an indicator for large public sector banks. This is because large public sector banks face greater challenges in attracting deposits than smaller banks.
He said the key focus for public sector banks will be deposit growth and there will be a disconnect between small and large banks.
As for private banks, he believes deposit growth is improving at the sector-wide level. Therefore, the focus is on the quality of the assets.
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