ICICI, Axis & HDFC Bank Will Gain Most From Economic Revival, Say Analysts

MUMBAI: Getting the economy going again will be among the primary tasks of the new government, although there are few concrete signs of a turnaround amid gloomy forecasts of a possibly weak monsoon. But if and when some of the sunnier prognostications come true, the banking sector will be among the beneficiaries.

Banking analysts are of the view that once the economy picks up, ICICI Bank and Axis Bank will gain on account of loan growth and HDFC Bank will benefit on account of better credit quality and margin improvement.

"All the three banks - ICICI Bank, HDFC Bank and Axis Bank - are well placed to grow once the economic revival kicks in. In terms of valuation, Axis Bank is cheaper compared to an ICICI Bank," said Vaibhav Agarwal, banking analyst at Angel Broking. "Axis Bank's focus on its retail business has increased over the past two years. There have been some concerns on the asset-quality front. However, once the policy environment improves, these concerns will be over."

The banks have been consolidating corporate loans and diversifying their balance sheet, so they are positioned to hit the growth button once the economy gains momentum. In the March quarter, the big three private sector lenders saw credit growth in the high teens.

In the March quarter, ICICI reported a 15% rise in profit to Rs 2,652 crore, while Axis Bank's increased 18.5% to Rs 1,842 crore, both meeting expectations. HDFC Bank's profit grew 23% to Rs 2,327 crore, the slowest in more than a decade and below estimates on account of the sluggish economy and higher tax rates.

Private lenders expect to grow faster than the industry average, which is around 20%.

"We expect the system loan growth to be 16-18% in the current financial year. We aim to grow at 2-4% higher than (this) average. So, our credit growth is expected to be 18-20%," said Chanda Kochhar, managing director and chief executive officer, ICICI Bank. On the asset quality front, managements feel the worst is over.

"ICICI Bank and Axis Bank would be the biggest beneficiaries of an economic revival as they would see loan demand from corporates increase. HDFC Bank will see increase in short-term loan demand and will benefit from improved asset quality," said Saday Sinha, banking analyst, Kotak Securities. "Axis Bank has exposure to the power sector. In the next one-and-a-half years, if the input linkage problems are not solved, it (Axis Bank) runs the risk of restructuring these accounts."

ICICI Bank and Axis Bank have restructured loans worth Rs 2,156 crore and Rs 1,115 crore, respectively. "Looking at where we are and the uncertain environment, with no change in financial year 2015, we see credit cost to be around 70 basis points," said V Srinivasan, executive director, corporate banking at Axis Bank.

Net non-performing assets rose marginally to 0.3% from 0.2% for HDFC Bank.

"We have managed to maintain asset quality as we have avoided lending to some names and stayed away from groups that have been highly leveraged," said Paresh Sukthankar, deputy MD, HDFC Bank. There is an element of "growth and asset quality linked to the economic growth. The worst is behind us. Clearly we are off the bottom", he said.