

IIFL Securities on Tuesday, July 1, said its June quarter profit after tax (PAT) estimates for banks including IndusInd Bank (IIB), Federal Bank, Axis Bank and ICICI Bank are 5-18 per cent below the consensus estimates. The profit estimates for RBL Bank and State Bank of India (SBI) are ahead, and largely in-line for other banks, the domestic brokerage said.
Net-net, IIFL Securities expects banks’ Q1 FY25 PAT to remain under pressure, declining 2 per cent year-on-year and 4 per cent quarter-on-quarter, weighed down by muted loan growth, NIM compression, seasonally weak fee income, and higher slippages.
Business momentum remains tepid, with system-wide loan and deposit growth largely flat on a sequential basis, it said.
"Based on our loan re-pricing analysis, we expect loan yields to decline by 10–20 basis points (bps) quarter-on-quarter. This yield compression is likely to outweigh the impact of savings account (SA) rate cuts of 20–350 bps, peak term deposit (TD) rate cuts of 20–100 bps, and a 100bps reduction in bulk deposit rates, resulting in net interest margin (NIM) contraction of 8–25 bps," it said.
Fee income is expected to soften due to seasonal factors, though lower G-sec yields should support higher treasury gains, it said adding thatpperating expenses remain sticky, leading to negative operating leverage (jaws) for most banks, and translating into flattish core pre-provision operating profit (PPOP) growth.
We also expect credit costs to edge up, driven by seasonal increases in slippages and ageing-related provisioning.
IIFL said the banking system loan growth has decelerated to 9.6 per cent YoY from 11 per cent in 4QFY25. It sees 7-13 per cent YoY growth for the covered banks (ex IIB), and a sequential de-growth for Bank of baroda (BOB) and IndusInd Bank (IIB).
"We expect most banks to report negative jaws, save for HDFC and Axis. We expect flattish core PPOP growth, with a YoY de-growth for IIB, RBL, BOB, SBI and FB," IIFL Securities said.
IIFL said gross slippages may inch up seasonally across most banks led by Agri, save for a decline in IndusInd Bank and RBL Bank due to high base.
"Credit cost should trend higher across most banks (ex. IIB, RBL and SBI) due to higher slippages and absence of one-time provision reversals on the govt. guaranteed SRs as seen in Q4," it said.
Ahead of banking sector Q1 results, the brokerage has downgraded Bank of Baroda (BOB) to 'ADD' from 'BUY', as return on asset (ROA) falls below 1 per cent and on limited upside. "We upgrade RBL Bank to BUY (from ADD) as it is a turnaround play available at cheap valuations," IIFL Securities said.