The banking sector is in focus after the slew of banking numbers over the weekend. Key brokerage houses have come up with their recommendations and here is a look at CLSA’s top picks in the banking sector. The top picks from them include ICICI Bank along with State Bank of India among large caps and Bandhan Bank among midcaps. The brokerage house has also increased the target price for HDFC Bank.
Here is a detailed analysis of their recommendation for HDFC Bank and ICICI Bank-
CLSA on HDFC Bank: Maintain Outperform
CLSA maintains Outperform on HDFC Bank and have revised the target higher to Rs 2,300 per share. This implies 18% upside from current levels. This is to account for CLSA’s “lower cost of equity assumptions.”
The brokerage house forecasts HDFC Bank “delivering 11% loan growth in FY26 and 15 -16% thereafter.” They are also factoring in 10 bps moderation in net interest margins in FY26 from FY25 levels, with a recovery in FY27. Over FY25-FY28, they estimate “HDFC Bank to deliver a 15% annualised growth on a compounded basis.
According to CLSA, i was encouraging to see “HDFC Bank’s CASA growth, which was only 0-1% QoQ for the past few quarters, picked up to 4% QoQ in Q1. We believe that with the bulk of the LDR reduction done, management’s focus is now more on quality of deposits rather than quantity of deposits raised.”
The loan book was flat QoQ as the bank reduced its wholesale exposure and the demand environment in secured retail loans was poor. The Bank’s gross/net slippage ratios of 1.4% / 0.7% is similar to prior Q1s (sequential comparison affected by seasonality of agriculture slippage). The brokerage added that they see the management comment “that it does not see any issue in its unsecured loan portfolio,” as a positive.
CLSA on ICICI Bank: Recommend ‘Outperform’
CLSA maintains ‘Outperform’ on ICICI Bank with a target price of Rs 1,700 per share. This implies 19% upside from current levels. According to CLSA, ICICI Bank is the only bank under their coverage so far to report sequential growth in NII, despite the sharp rate cut environment. The profitability metrics is holding up well while growth softened.
The brokerage also added that the “NIM, adjusted for one-offs and accounting intricacies, was down inly 5 bps QoQ. This is better than peers that witnessed a 11-13 bps core NIM compression.” Asset quality remains stable.
They pointed out that the loan growth for the bank moderated to 11-12% YoY given the weak demand environment coupled with ICICI Bank’s focus on profitable growth. According to CLSA, “ICICI Bank reported some moderation in loan growth – around 12% YoY, down from the 13-16% observed in preceding quarters. This was driven by a further slowdown in retail loan growth down to 7% YoY. Within retail, mortgages remain the only growth driver as vehicle finance, unsecured personal loans and credit cards are barely growing.
The management expects “growth in unsecured loans to pick up later this year as asset quality has been stable.” In contrast, the business banking segment continued its strong expansion, growing 30% YoY. On the deposit front, growth moderated to 13% YoY as the bank curtailed wholesale deposits. Notably, CASA deposits grew as fast as overall deposits, unlike other banks where CASA growth is lagging deposit growth.
Strong performance on NIM; asset quality stable
Adjusted for interest on income tax refund and ‘day count’ accounting, ICICIB’s margins dropped only 5bps QoQ to 4.34% versus our expectation of a c.15bp drop. It is hard to say exactly how much of the 100bp repo rate cut has been passed through – we think it is less than half. Hence, we expect NIM to compress in 2Q, but we also expect that to be the bottom. Gross slippage ratio moderated 15bps YoY to 1.9%, while credit costs were 50-55bps.
