InCred’s Banking Bet: Private Players Lead While PNB, Canara Bank Hold Promise

While the Indian banking system is struggling with margin compression and sluggish loan growth in Q4FY25, InCred has shown a bias towards private banks compared to public sector banks (PSBs). While private banks show higher resilience and flexibility in balance sheet management, Punjab National Bank (PNB) and Canara Bank are tactical choices among PSBs because of valuation comfort.

 

Private Banks Perform Better Than PSBs

Private sector banks like Kotak Mahindra Bank and ICICI Bank have provided positive returns in spite of tough times. Their robust deposit franchises and improved management of liquidity buffers render them more appealing than PSBs.

 

Margin Pressure Across the Sector:

The recent rate cuts by the Reserve Bank of India have accelerated net interest margin (NIM) compression, hurtfully impacting profitability in the banking industry. Public sector banks are especially susceptible because of their greater dependence on term deposits.

 

PNB and Canara Bank as Tactical Picks

In spite of the wider issues with PSBs, InCred finds favorable risk-reward opportunities in PNB and Canara Bank. These banks provide valuation comfort and liquidity levers to counter some margin pressures.

 

Muted Earnings Growth Expected:

Weak Q4FY25 earnings are expected for both private and public banks on account of weaker loan growth, high credit costs, and poor trading gains. Private banks, however, are likely to perform marginally better with stable asset quality.

 

Sectoral Underperformance:

The Nifty PSU Bank index has fallen 12% year-to-date in CY25, lagging the overall market. SBI, Canara Bank, and PNB have fallen sharply but continue to be under scrutiny for tactical investment opportunities.

 

Strategic Outlook:

InCred advocates a selective strategy for bank shares, backing private banks with robust retail underwriting strengths. Tactical bets such as PNB and Canara Bank are recommended for PSBs over larger counterparts such as SBI or Bank of Baroda.

 

Sources: Economic Times, Business Standard