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ICICI, Axis, HDFC Bank in a shock, NO, Not Demonetisation

Dynamic Equities Pvt Ltd | 30 Jan, 2017  | Follow Author | Add to my Favourites 
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Indian bank investors are in for a rude shock and its got little to do with demonetisation effects. The fault lies in the shareholders’ own expectations, which, in Morgan Stanley’s words, are driven by - institutional memory. The top 3 Indian private-sector lenders by assets —  ICICI Bank, HDFC Bank and Axis Bank,  have such a stellar record of boosting their net interest margins that it’s almost unthinkable the profit could now be in reverse gear.


Corporate loans have all but stalled, and with banks piling into retail lending, yields on personal advances are down 250 basis points (bps) over the past one and a half years while loans against property have become 300 bps cheaper. On the deposit side, customer loyalty has turned fickle. A survey showed that 84 per cent of people are willing to open a novel account to get more juice out of their savings. Novel banks such as  Equitas Small Finance Bank and RBL Bank, as well as older but smaller lenders like Kotak Bank and Yes Bank, are offering more lucrative rates than the big 3. Digital wallets such as Paytm, meanwhile, are looking forward to expand into wealth management.

Public is willing to open a brand new account for a better rate:


Analysts estimate that HDFC Bank, ICICI and Axis will expand their combined pre-provision operating profit by just 32 per cent over the next 3 years as they sacrifice margins to gain market share. After a 6-fold increase in operating earnings over the last decade, this would be a significant slowdown.

Among the three, HDFC Bank is perhaps the best placed to weather competition. It does as much credit-card business as the trio put together. Even then, its exceptional track record of 29 per cent annual average earnings growth over nearly 20 years is perhaps now for the history books. This week, HDFC Bank disclosed that it had let go of 4,500 employees in Q3, the most in any 3-month period.

As far as ICICI and Axis is concerned, the jam could be a lot sticker. It might be time for investors to halt waiting for a clean up of NPAs on their corporate loan books and begin worrying about the upcoming erosion of margins.

The lavishness of bank deposits since 8th November ban on high-value currencies may be masking the challenge however a new kind of ugly is on its way. In the Indian subcontinent, the better lenders may have it the worst.

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Dynamic Equities Pvt. Ltd. is a a SEBI Registered Investment Advisor and Stock Broker, a leading financial services provider, and one of the major players in the Equity markets in India. With an experience of over 15+ years in Stock Markets and Equity Research, they provide daily updated Support & Resistance of 4200 instruments across 93 exchanges and 56 countries globally. They have an in-house team of over 25 analysts. Under the guidance and mentorship of Mr. Shailesh Saraf, MD of Dynamic Equities Pvt. Ltd., these analysts are dedicately involved in guiding their clients and users of the website for trading in the market. Mr. Shailesh Saraf has an experience of over 24 years in the financial market, especially in capital & derivatives market operations, trading, research and management related areas. Dynamic Levels is a website owned by Dynamic Equities Pvt. Ltd. The website can be reached at

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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