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Banking Q4FY22 Preview: Pick-up in credit growth, better recovery to aid financials

ICICI Securities 08 Apr 2022

What’s Buzzing:

The BFSI space is expected to witness strong momentum in business growth in Q4FY22. Aided by improvement in margins and decline in credit cost, lenders are likely to witness uptick in earnings.

Context:

Advances growth is expected to be driven by the retail and MSME segment. For our coverage universe, credit growth is expected to be above industry at ~10.4% YoY to Rs 51.2 lakh crore, driven by retail & MSME segment. Private banks are expected to gain market share from PSU counterparts. Sequentially, growth is expected to pick up at ~4-6%. Overall asset quality should see improvement. We believe GNPA and NNPA should decline ~20 bps and ~10 bps QoQ to 4.5% and 1.3%, respectively. Led by 10.4% YoY growth in advances and ~3-5 bps expansion in NIMs, we expect NII growth of 18.8% YoY to Rs 64764 crore for our coverage universe. Credit cost is expected to decline as fresh stress addition is expected to reduce. Thus, net profit for our coverage universe is seen at Rs 20022 crore, up 75.5% YoY, aided by decline in credit cost.

Our Perspective:

Overall retail + MSME focused lenders (banks & NBFCs) should see healthy pick up while MFI segment should see better collections with revival in economic activity. However, we believe growth aspect for the current quarter has largely been factored in with announcement of pre-results business update. However, the management commentary on business growth for FY23E would be key as this would indicate sustainability ahead. Commentary on asset quality (slippages and recoveries) would also be looked upon as we believe hurdles pertaining to pandemic are largely behind us.

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