HDFC Bank, ICICI, Axis Bank, KMB: Why Antique prefers large private banks over PSU lenders

Antique Stock Broking on Wednesday said it continued to prefer large private banks and select mid-sized lenders over PSU banks, even though PSU banks, as a group, delivered a better set of results than private banks. The brokerage said PSU lenders were helped by the rundown of bulk deposits, softening bond yields that aided treasury gains, and benign credit costs. It added that most PSU banks are trading at 0.6-1.0 times forward book value, but it still prefers private lenders because of the upcoming transition to the ECL framework and possible wage revision provisions at PSU banks, effective from November 2027.

Antique has 'Buy' rating on HDFC Bank, Axis Bank, Kotak Mahindra Bank Ltd (KMB), ICICI Bank, DCB Bank, Federal Bank Ltd, Karur Vysya Bank Ltd and Equitas SFB. Given the recent run-up in smaller private banks and its concerns around PSU bank profitability from FY28, Antique said its pecking order starts with large private banks, with ICICI, KMB and Axis Bank, followed by SBI within PSU banks, and Ujjivan SFB, Federal Bank and DCB Bank within smaller private banks.

Target prices for 17 banks

The brokerage said the focus of the result season was on margins and FCNR(B) deposit mobilisation. According to Antique, the FCNR(B) deposit scheme, which started on June 8, has delivered its expected outcome of about $70 billion in inflows, expected by the end of August, while also stabilising the INR-USD rate and softening the 10-year G-sec yield from above 7 per cent to 6.8 per cent. It said that after the initial euphoria around FCNR(B) deposits, bank share prices stabilised because bank earnings are more sensitive to NIMs than to balance sheet growth.

Antique said most private banks that are offering customers leverage options to fund FCNR(B) deposits are likely to see a marginally dilutive impact on NIMs of 3-15 basis points. It said this would depend on assumptions around the proportion of leveraged customers, funding from fixed and floating overseas bond borrowings, and the share of the low-spread overseas advances portfolio. At the same time, it said the clear beneficiaries of softer market rates due to FCNR(B) deposits are banks with weaker liability franchises such as IndusInd, KVB, CUBK and IDFC First, as well as deposit-constrained banks such as HDFC Bank and Axis.

Despite the impact on margins, Antique said the effect is negated by strong growth in the underlying balance sheet and potential cross-sell opportunities. It added that likely resolution of the management overhang at HDFC Bank and KMB should bring the focus back to the underlying fundamentals of these banks and support stock prices. The brokerage also said that while valuations of mid-sized private banks are near peak levels, they stand to benefit from improved liquidity and benign asset quality.

On valuations, Antique said that while overall banking sector valuations are above mean levels, the premium of large private banks over PSU banks and mid-sized private banks has fallen to decadal lows. It said its large-cap private bank index continues to trade 2 SD below its long-term average.