High valuations factor in strong show by private banks

Leading private banks - ICICI Bank, HDFC Bank and Axis Bank continued to deliver good results as they met the street's expectations for the March 2013 quarter. While loan growth and margins remained strong for all three players, fee income growth remained mixed (hit by muted activity on the project finance front).

Current valuations of the three banks seem to adequately capture in the positives of strong return ratios and higher profitability. Notwithstanding expectations of good loan growth in FY14, managements and analysts continue to remain cautious on the asset quality trends for private banks.

“We believe that credit costs for the private sector banks pose a downside risk to our earnings growth forecasts. We are concerned around continuing asset quality risks stemming from the infrastructure sector - especially power”, says Krishnan ASV, Banking analyst at Ambit Capital.

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