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Bank stocks are likely to remain under pressure on concerns over asset quality and slowing credit-deposit growth, even as likely stress on interest margins will weigh. The banking sector continues to face multiple headwinds related to unstable macro, higher interest rates, slowing growth and asset quality issues. Hence, despite attractive valuations we continue to maintain our negative stance on the sector. However, Stocks of large banks like State Bank of India, HDFC Bank and ICICI Bank are preferred over those of mid-sized lenders. Private sector banks and large public sector banks are better poised than their peers in terms of asset quality. State Bank of India may remain in focus as investors await announcement of a new chairman for the bank. Pratip Chaudhuri retired on Sep 30. JP Morgan has recommended a buy on Kotak Mahindra Bank, IndusInd Bank and YES Bank. ICICI's significant lead over the other large banks is a strong positive for the next 2-3 years. We think it represents an opportunity to improve productivity in the next 2-3 years. Although none of the banks will declare their Jul-Sep results next week, investors and traders will wait for cues from banks on their results trend. Bank deposit and loan rates to remain sticky with an upward bias from current levels till the rupee's exchange rate does not stabilise. Banks' credit growth is likely to be subdued, although over the last four fortnights the credit growth was above Reserve Bank of India's projections. Credit growth was 17-18% in last four fortnights as interest rates on short-term debt instruments rose sharply after the liquidity tightening measures announced by the RBI in July. However, in the third week of September, rates on shortterm debt instruments fell after RBI cut the Marginal Standing Facility rate by 75 basis points to 9.50% at its mid-quarter monetary policy review.
Bank stocks are likely to remain under pressure on concerns over asset quality and slowing credit-deposit growth, even as likely stress on interest margins will weigh. The banking sector continues to face multiple headwinds related to unstable macro, higher interest rates, slowing growth and asset quality issues. Hence, despite attractive valuations we continue to maintain our negative stance on the sector. However, Stocks of large banks like State Bank of India, HDFC Bank and ICICI Bank are preferred over those of mid-sized lenders. Private sector banks and large public sector banks are better poised than their peers in terms of asset quality. State Bank of India may remain in focus as investors await announcement of a new chairman for the bank. Pratip Chaudhuri retired on Sep 30. JP Morgan has recommended a buy on Kotak Mahindra Bank, IndusInd Bank and YES Bank. ICICI's significant lead over the other large banks is a strong positive for the next 2-3 years. We think it represents an opportunity to improve productivity in the next 2-3 years. Although none of the banks will declare their Jul-Sep results next week, investors and traders will wait for cues from banks on their results trend. Bank deposit and loan rates to remain sticky with an upward bias from current levels till the rupee's exchange rate does not stabilise. Banks' credit growth is likely to be subdued, although over the last four fortnights the credit growth was above Reserve Bank of India's projections. Credit growth was 17-18% in last four fortnights as interest rates on short-term debt instruments rose sharply after the liquidity tightening measures announced by the RBI in July. However, in the third week of September, rates on shortterm debt instruments fell after RBI cut the Marginal Standing Facility rate by 75 basis points to 9.50% at its mid-quarter monetary policy review.
