2025-06-03-Bernstein-印度金融行业_公共部门银行的持续激进策略——私营部门银行面临的最大风险_20页_482kb

Summary of India Financials: PSBs' Continued Aggression - The Biggest Risk for PVBs

Core Content

This document discusses the evolving dynamics between Public Sector Banks (PSBs) and Private Sector Banks (PVBs) in India, focusing on the impact of PSB aggressive growth strategies on PVBs. While macroeconomic factors like credit growth, rate cuts, and margin pressures are widely discussed, the report emphasizes that the medium-term risk to PVBs is the increased aggression from PSBs, which could affect both growth and profitability.

Main Points

• PSBs Outperform PVBs in Loan Growth:
  PSBs are growing loans at a rate 4 percentage points (pp) higher than PVBs. Even after excluding HDFC, the gap remains 2 pp. This outperformance spans multiple segments, including mortgages, corporate loans, and non-mortgage retail segments like auto loans.

• PVBs' Premium Valuations at Risk:
  PVBs have historically commanded premium valuations due to their faster market share gains, often outperforming the system by 4–6 pp. However, if this growth premium continues to narrow, the rationale for their premium valuations weakens. While PVBs still offer higher profitability and trade at reasonable valuations, the relative growth slowdown could lead to valuation de-rating.

• Deposit Growth Still Favorable for PVBs:
  PVBs continue to show superior deposit growth, especially in CASA (Current and Savings Accounts), which is a better indicator of long-term growth potential. This gives PVBs a relative advantage in the long run.

• PSB Growth at Expense of Margins:
  Much of the PSB growth has come at the expense of margins, raising concerns about the sustainability of their aggressive pricing strategy. PSBs have benefited from non-interest income gains and low credit costs, which have limited the impact on Return on Assets (RoA).

• Key Variable to Monitor:
  The report tracks whether PSBs can sustain aggressive pricing even as non-interest income and credit costs normalize. If PSBs are willing to operate with RoA below 1% to defend or gain market share, this could become a sector-wide headwind for PVBs.

Investment Implications

• Rating Overview:

  • Outperform: HDFC, Axis, and IndusInd Bank
  • Market-Perform: ICICI, Kotak Mahindra, and SBI

• Constructive Outlook on the Sector:
  Despite the PSB threat, the report remains constructive on the banking sector as a whole, citing reasonable valuations, expected credit growth, and margin recovery potential.

• Long-Term Outlook for PVBs:
  In the long run, PVBs are expected to emerge as winners, assuming loan growth remains aligned with deposit growth and that PSB aggression does not persist indefinitely.

Risks and Downside Factors

• Axis Bank:

  • Reversal of margin improvement trends
  • Poor execution of Citi acquisition
  • Uncontrolled operating costs

• HDFC Bank:

  • Deterioration in asset quality of unsecured and developer finance portfolios
  • Adverse impact of leadership changes
  • Tight liquidity environment affecting deposit growth

• ICICI Bank:

  • Compromising on risk-adjusted yields to drive retail growth
  • Sharp increase in operating expenses due to network expansion

• IndusInd Bank:

  • Risk to commercial vehicles, microfinance, and LAP portfolios due to credit quality issues
  • Continued slowdown in the commercial vehicle segment
  • Deterioration in retail loan asset quality

• Kotak Mahindra Bank:

  • Failure to scale loan book as per guidance
  • Margin pressures due to low liability growth
  • Delay in lifting customer acquisition ban and credit card issuance

• State Bank of India:

  • Higher stress and credit costs in retail loan segment
  • Loss of market share across customer segments
  • Inability to control employee and operating costs

Valuation Methodology

The report uses a Price-to-Book (P/B) multiple approach to determine price targets for each bank. Key valuation metrics include:

• Axis Bank: P/B of 1.8x, FY26E book value of INR 701, PT of INR 1,300
• HDFC Bank: P/B of 2.8x, FY26E book value of INR 731, PT of INR 2,300
• ICICI Bank: P/B of 2.8x, FY26E book value of INR 469, PT of INR 1,440
• IndusInd Bank: P/B of 1.1x, FY26E book value of INR 903, PT of INR 1,000
• Kotak Mahindra Bank: P/B of 2.2x, FY26E book value of INR 897, PT of INR 1,950
• State Bank of India: P/B of 1.5x, FY26E book value of INR 619, PT of INR 900

Ratings Definitions

• Outperform: Expected to outpace the relevant index by more than 10–15 pp
• Market-Perform: Expected to perform in line with the market index (within ±10–15 pp)
• Underperform: Expected to trail the market index by more than 10–15 pp
• Coverage Suspended: No current coverage or ratings available
• Not Rated: Inaccurate valuation or prediction at this time

Key Takeaways

• PSB aggression is a medium-term risk to PVBs, potentially leading to growth and profitability pressures.
• PVBs still have superior deposit growth and higher profitability, supporting their premium valuations.
• The sustainability of PSB growth is uncertain, as it is driven by aggressive pricing and low credit costs, which may not be long-term viable.
• Investment implications suggest constructive outlook on the banking sector, but close monitoring of PSB strategies is necessary.