Record rise in Indian bank shares continues as balance sheets strengthen

Record rise in Indian bank shares continues as balance sheets strengthen

Shares of Indian lenders surged this year to a record high on Wednesday and analysts believe the party is likely to continue as banks release strong earnings reports for the fourth quarter.

Public Sector Bank Nifty . Index (.NIFTYPSU) It has jumped about 50% so far this year and the bank’s index (.NSEBANK) It rose nearly 17%, easily outperforming the benchmark Nifty 50 (.NSEI) Almost 4% gain.

This comes at a time when credit growth is at its highest level in several years and bad loans across lenders have fallen dramatically.

“A well-capitalized balance sheet, improved loan growth, and a lower cost credit outlook are positive catalysts that should allow for an improvement in valuation multiples as overall stability returns,” Nomura analysts said in a report earlier this week.

The brokerage said the private and state-owned lenders that remained in a better position for growth were ICICI Bank Ltd. (ICBK.NS)HDFC Bank Ltd (HDBK.NS)Axis Bank Ltd (AXBK.NS)IndusInd Bank Ltd (INBK.NS)Bank of Baroda Limited (BOB.NS) and State Bank of India (SBI) (SBI.NS).

Reuters graphics

“The rally in bank stocks is expected to continue for the time being as all banks saw higher loan growth and improved net interest margins as well,” said Asutosh Mishra, analyst at Ashika Stockbroking.

Credit growth is at its highest level in several years, with a slight rise in individual and corporate loans.

Central bank data showed that Indian banks saw a 17.9% year-on-year jump in credit growth for the two weeks to October 21, and market participants expect growth to accelerate in the coming months.

However, Mishra sounded a warning.

“One major concern going forward remains how the interest rate hike scenario will affect credit growth.”

Reuters graphics

While most lenders revised their credit growth targets upward, deposits were growing at less than 10%, according to central bank data.

Brokerage firm Macquarie said the rate of deposit growth remained a “disturbing concern”.

Some like SBI, the country’s largest lender, are looking to unbundle their treasury investments to boost deposit growth, while smaller lenders, like Yes Bank Ltd. (Yes. NS) and RBL Bank Ltd (RATB.NS)It depends on digital channels.

Macquarie pointed out another bright spot for Indian lenders is improving asset quality.

“Debit bounce rates are at the lowest level in the last four years indicating very strong asset quality results as evidenced by the credit costs of banks reporting for the quarter.”

(Nopur Anand Report). Editing by Savio D’Souza

Our criteria: Thomson Reuters Trust Principles.

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