HDFC, ICICI to kick-start Q4 earnings for banks; margins in focus as loan, deposits grow slower

Mint takes a look at the key points to watch out for in the banks’ earnings on 19 April:

Loan growth slows

Growth in advances for both banks is expected to be softer in Q4 FY25, with Motilal Oswal Securities pegging HDFC Bank’s loan growth for FY25 at around 11%, led by the retail, commercial, and rural banking segments.

In its initial business updates, HDFC Bank—which has been consciously going significantly slower on credit growth to shore up its credit-deposit ratio (CD)—declared loan growth of 5.4% on year for Q4 FY25, higher than 3% a quarter ago.

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“The headline reported numbers were better-than-expected on loan growth but weaker than industry average, reflecting the changes that they are undertaking to improve their CD ratio," Kotak Institutional Equities said in a pre-earnings note, adding that the CD ratio is expected to have improved 180 basis points sequentially to around 97%.

Loan growth for ICICI Bank is seen as steady, at a CAGR of around 17%. However, brokerage Goldman Sachs flagged concerns regarding a slowdown in the bank’s unsecured loan portfolio, which contributes about 25% of incremental loan growth, owing to rising asset quality concerns in small-ticket unsecured loans.

Goldman Sachs said in a note that unsecured loans account for around 13% of the bank’s total loans. The firm pegged the 12-month price target for the bank's shares at ₹1,373.

Deposit growth continues to lag

Elara Securities said in a note that the key factor to watch for HDFC Bank will be deposit traction and the composition in the form of ‘retail and others’. The note added that the CD ratio is expected to decline to 94-95%.

HDFC’s deposit growth, while continuing to be strong, slowed slightly to 14.1% in Q4 FY25 from 15.8% in the quarter ended December, as per the provisional figures released so far.

“HDFC Bank is addressing near-term post-merger headwinds, including high CD ratios and high-cost borrowings, by focusing on deposit mobilization and balance sheet rebalancing," Motilal Oswal said, pegging deposit growth for the bank at 15% between FY25 and FY27.

Margins remain under pressure

While margins for the broader banking sector are seen as under pressure owing to the slower transmission of rate cuts in deposit rates compared with lending rates, the net interest margins (NIMs) for the two large private sector banks are seen as stable to marginally lower, according to analysts.

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Even so, they said the market will be keenly watching the interplay between loan-deposit ratio (LDR), liquidity coverage ratio (LCR), and NIM, including management guidance on these metrics going into FY26.

Given the expectations of slower loan growth and subsequent impact on net interest income (NII) growth, the margins for HDFC Bank are seen "slightly lower sequentially", YES Securities said, adding that fee income growth will “broadly match loan growth" whereas operating expenditure will lag business growth.

Motilal Oswal Securities had a more optimistic view, saying that the bank's NIM is expected to reach 3.5-3.6% by FY27 as high-cost borrowings run off and the loan mix shifts toward higher-yielding assets.

For ICICI Bank, Elara Securities expects broadly steady NIM, largely benefitting from the impact of the CRR (cash reserve ratio) cut and lower slippages quarter-on-quarter (QoQ). Even so, the brokerage said it will monitor the figure for a possible higher impact in Q1 FY26. The operating expenditure for the bank is expected to continue to be high, in-line with year-end trends.

Asset quality stable

Asset quality, too, is seen as largely stable for these banks, aided by moderation in slippages compared to the previous quarter, which saw elevated slippages in the agriculture loan portfolio. The impact of the stress in the microfinance sector is seen as minimal for these banks.

Kotak Securities expects provisions growth to be higher for ICICI Bank as the base quarter had negligible provisions. “We are building slippages of 2% at ₹6,600 crore. We don’t expect any negative commentary on asset quality," it said.

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“ICICI Bank’s asset quality stands tall, led by a solid PCR (provision coverage ratio) of 79% and a reassuring contingency buffer of ₹13,100 crore at 1% of loans," Motilal Oswal Securities said. While there has been an uptick in unsecured loan delinquencies, the lender is well-positioned to keep credit costs in check.

Shares of banks traded in the green on Thursday, with HDFC Bank rising 3.7% to close at ₹1,407, and ICICI Bank gaining 1.5% to end at ₹1,905.80. Markets were closed today on account of Good Friday.