Q1 results preview: ICICI Bank, SBI other banks to report strong earnings, says Morgan Stanley; here’s why

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ICICI Bank and state-owned enterprise (SoE) banks like IndusInd Bank, Bank of Baroda (BOB), and State Bank of India (SBI) in particular to record strong earnings in Q1FY24 (April–June). According to the brokerage's analysis, ICICI Bank will likely post significant volume growth for both loans and deposits. Given that SoE banks' margins are declining slowly than private banks', that their loan costs are lower, that their operating costs are dropping sequentially, and that their treasury profits are larger, they should also record healthy profitability.

Considering the high loan growth and reduced credit costs, wholesale funded banks should post strong earnings. "While margins will start normalising from Q1FY24 (April-June) quarter, strong loan growth/asset quality and improving deposit growth provide an offset. Investor focus will be around competitive intensity on deposits and likely trough levels for Net interest margin (NIMs).

ICICI Bank & SoE banks in particular to report strong earnings," the brokerage said in its report. According to the brokerage's analysis, the retail/SME segment has helped keep system loan growth, which was 15% YoY as of June 16, stable from the previous quarter. With higher real deposit rates, system deposit growth has increased to 12.1% YoY from 9.6% YoY in the previous quarter and is expected to pick up speed in the upcoming quarters.

"We expect private banks to report strong deposit growth despite a seasonally soft quarter (where the deposit base typically declines on a QoQ basis)," added the brokerage. Over the next two to three quarters, banks will witness a deposit rate catchup, which will cause NIM to normalise. Due to quicker loan repricing over the past year, NIMs have increased