homefinance NewsAxis Citi deal RoA accretive; will stick with banks in a rising rate scenario: Macquarie Capital
finance | Mar 31, 2022 7:56 PM IST

Axis-Citi deal RoA accretive; will stick with banks in a rising rate scenario: Macquarie Capital

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Banking sector has had its fair share of tests the past year. While the sector is showing a credit growth of 8.5 percent as compared to 6.5 percent last year, but on the macros front, growth estimates have been cut. To understand how banks will fare going ahead, CNBC-TV18 spoke to Suresh Ganapathy, Banking Analyst, Macquarie Capital Securities.

The banking sector has had its fair share of tests in the past year. While the sector is showing a credit growth of 8.5 percent as compared to 6.5 percent last year, but on the macros front, growth estimates have been cut.

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State Bank of India (SBI) is up 36 percent on a year-on-year basis, whereas ICICI Bank is up 26 percent. The bigwigs in the space including HDFC Bank and Kotak have been flat.
To understand how banks will fare going ahead, CNBC-TV18 spoke to Suresh Ganapathy, Banking Analyst, Macquarie Capital Securities.
Ganapathy said that he will stick with banks in a rising rate environment. He cited that 10-11 percent nominal GDP growth should result in 13-14 percent credit growth. However, he cautioned that there is a 200-300 basis points downside to credit growth in case GDP estimates are revised lower. He also mentioned that existing loans could get repriced higher in case of a hike in rates.
Citigroup recently announced that it's selling Citibank's India retail business to private lender Axis Bank for USD1.6 billion. The transaction comprises the sale of consumer banking businesses of Citibank India, which include credit cards, retail banking, wealth management, and consumer loans.
On the Citi-Axis deal, he said that the price paid is reasonable. He believes it to be the deal to be accretive from a return on assets (RoA) standpoint. He added that improvement in RoA and margin are triggers for Axis Bank. He said that Macquarie has a neutral call on Axis Bank with a target price of Rs 790 per share.
On Kotak Bank, he said that there is some element of uncertainty about Uday Kotak eventually retiring.
He said, “Based on our interactions with the investors, a lot of the FII investors who own Kotak a lot, they are a bit worried about management transition; though it is about 2 years away, the fact that both Uday Kotak and Deepak Gupta who has been in the bank for a very long period of time and been on the board, going off in two years means there is some element of management uncertainty until the time there is clarity, it’s going to be a bit difficult.”
For HDFC Bank, he sees better products now that the ban has been removed. He said that the scarcity premium for HDFC Bank is reducing as there are other investment options available in banks.
“The bigger problem is lack of substitutes in the earlier cycle. Today, ICICI is doing very well and catching up and probably Axis will catch up. So there are more alternatives available for investors. Therefore, now that you have better substitutes available, the amount of scarcity premium awarded to HDFC Bank knowing that they will do well irrespective of the cycle and there is no other choice gets removed. So that partially explains why sustainably that multiple no longer is going to be there for HDFC Bank,” said Ganapathy.
Watch the video for the full interview.
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