(Bloomberg) -- Earnings growth at India’s banks will be weighed down by their struggle to rapidly grow customer deposits amid robust demand for loans, with lenders like Axis Bank Ltd. grappling with high credit-deposit ratios.
The Reserve Bank of India has advised lenders to maintain a more prudent credit-deposit ratio with Governor Shaktikanta Das stressing that the growth in deposits should keep pace with expansion in loans, he told CNBC-TV18 earlier in January. While the RBI has not set a target ratio, analysts see 70% to 80% as a comfort level. With deposits lagging behind the demand for credit, banks need to borrow to lend, which increases credit costs and crimps margin, as seen in Kotak Mahindra Bank Ltd.’s earnings on Saturday.
Top private sector lender HDFC Bank Ltd., which beat 1Q profit estimate Saturday, also highlighted the bank was prioritizing bringing down its credit-deposit ratio and keeping margins wide, rather than rapidly growing lending, after CEO Sashidhar Jagdishan said the bank would grow loans slower than deposits until the CD ratio is down to pre-merger levels.
Demands for agriculture loan waivers from farmer groups, if allowed, may also upset credit quality at the country’s banks, analysts said. Any proposal related to farm credit will be in focus in this week’s federal budget. Engineering firm Larsen & Toubro Ltd., with sizable revenue generation from government contracts, stands to benefit if the budget proposes higher infrastructure spending, while consumer goods firm Hindustan Unilever Ltd. will gain from pro-consumption policies.
Highlights to look out for:
Tuesday: Nidec (6594 JP) first-quarter net income is expected to decline by nearly a third, weighed by lower operating profit across segments including automotive products, electronic and optical components, consensus estimates show. That said, the Japanese electronics part maker, together with its peers may benefit from a gradual rebound in local demand for car parts, according to Bloomberg Intelligence.
- Hindustan Unilever (HUVR IN) probably saw muted growth in first-quarter revenue as there was only a slight pick up in volume expansion. The sweltering summer likely boosted sales of ice cream and cold drinks, but limited the sales of tea and coffee and out-of-home consumption. The forecast for an above-normal monsoon should be positive for the firm.
- Bajaj Finance’s (BAF IN) profit growth may slow slightly to 16% in a seasonally weak quarter for lending. Assets under management grew 31%, the firm said in a pre-earnings update.
Wednesday: Axis Bank (AXSB IN) may report softer business growth in the first quarter, and lower deposit growth, according to ICICI Securities. The Indian lender’s net interest margin is also expected to be lower by less than 10 basis points on quarter, it added.
- Larsen & Toubro’s (LT IN) revenue growth in the core infrastructure segment should slow to about 14% as the company completed projects ahead of Indian elections and as labor availability was hit by voting and heat waves. The firm, buoyed by a recent rating upgrade, hopes to increase its share of international orders, aiming for a 10% share of Saudi Aramco’s annual spending.
Thursday: SK Hynix (000660 KS) could have an edge over its competitors with high demand for its product line-up and higher average selling price, said Korea Investment & Securities. Operating income in second-quarter likely surged about two fold, while revenue for its DRAM products rose 130%, according to estimates.
- Nissan Motor (7201 JP) first-quarter earnings may be supported by lower material costs and a weak yen, despite intense competition slowing its sales, BI said. Watch for comments on EV battery space, after Nikkei reported that Nissan plans to develop a system that manages health and performance of batteries digitally with other Japanese companies.
Friday: Contemporary Amperex Technology (300750 CH) may see headwinds as US lawmakers propose the Chinese battery maker should be added to an import ban list, but earnings impact might be limited as most of their batteries are sold within China and Europe, according to a BI note in June. Still, long-term regulatory challenges could persist in its US expansion. The firm is also in talks to launch a $1.5 billion fund to expand its global supply chain.
--With assistance from Shinhye Kang.
(Updates after weekend earnings releases. An earlier version of this story corrected earnings release date of SK Hynix.)
©2024 Bloomberg L.P.
