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Banking stocks ready to shine with strong business – BFSI Q2FY23 Preview

ICICIdirect Research 10 Oct 2022 DISCLAIMER

What's Buzzing


With results around the corner for Q2FY23E, banking sector earnings momentum is expected to remain strong. Key provisional figures of banks signal a significant improvement in business. While the operational performance is expected to remain positive across lenders, given steadier yields, a robust recovery in earnings is expected in PSU banks. 



In Q1FY23, treasury losses due to rise in yields impacted earnings, especially of PSU banks. However, a recent decline in yields is expected to reduce treasury losses seen in Q1FY23, which remains a near term catalyst, especially for PSU banks. In addition, all floating rate loans will get repriced, which will expand margins on a QoQ basis. 

Our Perspective


The latest RBI data has indicated growth of 16.2% YoY for the overall banking sector, indicating a continuous improvement in credit offtake. Further, the upcoming festive season is expected to give a boost to retail credit demand. In addition, corporates (especially MSMEs) are turning to banks for working capital limits. We believe NPAs have largely bottomed out and the trend of lower credit cost should continue in Q2FY23 as well. An improvement in asset quality is expected to be led by healthy recoveries and steady incremental slippages. Slippages from the restructured book need to be watched. For our coverage universe, we believe GNPA should fall ~5-8 bps QoQ to 3.45%. With an adequate provision buffer already in place, an improvement in asset quality and lower slippages, we believe there will not be a material increase in credit cost on a sequential basis. Hence, we expect PAT to report strong growth of 47.8% YoY and 22% QoQ. Commentary on business growth for FY23E, especially in the wake of interest rate hikes, would be key. In addition, commentary on liabilities trend and utilisation of SLR to shore up business needs to be seen.

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