HDFC Bank, PNB, SBI, RBL, Federal Bank, Axis, ICICI, Kotak Bank: Share price targets

ICICI Bank, State Bank of India (SBI), Kotak Mahindra Bank Ltd and AU Small Finance Bank are MOFSL's top banking stock ideas. In a fresh note, the domestic brokerage said FCNR(B) inflows of $127 billion have provided a temporary relief in deposit mobilization, improved systemic liquidity, and strengthened forex reserves. These inflows should further support credit growth for the banking sector, the domestic brokerage said.

For ICICI Bank, MOFSL suggested a target of Rs 1,750. The target for Kotak Mahindra Bank has been set at Rs 470. SBI target is set at Rs 1,370 and AU SFB at Rs 1,275.

MOFSL said while net interest margin (NIM) for domestic banks are expected to be under pressure in the near term on account of limited spread on the overseas leveraged portion of FCNR(B) deposits, the deployment of these deposits and an improving asset mix will drive faster balance sheet growth and support earnings.

"We remain positive about systemic credit growth and have recently increased our growth projections to 14.3 per cent YoY, acknowledging that there is an upside risk to our estimates. We estimate a 150 bps increase in system credit growth to 15.5-16 per cent for FY27E. Top ideas: ICICI Bank, SBI, Kotak Mahindra Bank and AU SFB," MOFSL said.

The domestic brokerage suggested a target of Rs 925 on HDFC Bank. Axis Bank received a target of Rs 1,500, Bandhan Bank Rs 225, IndusInd Bank Ltd (IIB) Rs 1,125, PNB at Rs 135 and Federal Bank at Rs 400.

MOFSL said the huge FX inflows have led to surplus net banking system liquidity of over Rs 6 lakh crore as on August 31, the highest in last four months. Deposit growth, as per the recent fortnight print, has increased to 14.7 per cent YoY vs 12-13 per cent earlier.

Among banks, ICICI Bank mobilized $17.9 billion of FCNR(B) deposits, capturing 14 per cent market share of the total FCNR(B) inflows. SBI has garnered $9 billion afew days prior to t he close and is expected to beat its $10 billion guidance. RBL Bank has added $3.4 billion, capturing 2.7 per cent share, better than its deposit market share of 0.5 per cent.

After the relaxation in hedging costs of overseas foreign currency borrowings by the RBI, banks have raised $12.2 billion of dollar-denominated bonds. Among large banks, ICICI Bank, HDFC Bank, Bank of Baroda (BOB) and SBI have raised $3.6 billion, $2.5 billion, $1.1 billion and $1.1 billion, respectively.

"While all these deposits might not be under the swap facility given that total OFCB garnered under the scheme is Rs 530 crore, much of these overseas borrowings shall be utilized in providing the leverage facility for FCNR (B) deposits," MOFSL said.