Foreign brokerage Bernstein said it was switching back to private banks, as it sees less promising trajectory for PSU banks, as they struggle with weaker deposit growth despite agressive pricing and much lower liquidity buffers, resulting in a weaker earnings growth against private lenders. This would be against the last three years where PSBs outshone private banks due to their superior earnings growth and narrowing of the growth gap.
Bernstein sees the ere of PSBs superior earnings growth set to end soon. PSBs earnings growth rates are set to moderate sharply and fall behind the private banks -- a reversal of the trend seen in the last two years. On the growth front, it expects PSBs loan growth to slow down compared to private players. The trend was visible in the December quarter.
Bernstein said the liquidity room is a lo lower than what LDR gap might suggest, given the higher investments as percentage of assets for PSBs are a result of higher deposits and cannot reduced to be on par with private players.