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Banks to repeat stellar performance in Q3FY23
What's Buzzing
Bank’s credit growth continues to remain strong (in high teens). Banking stocks, especially PSU banks, have witnessed a recent rally in stock price led by asset quality comfort, credit growth traction and strong capital position for most of them.
Context
The provisional figures of banks as of December 2022 indicated robust traction in credit growth at ~18% YoY. Hence, the momentum in business growth and operational performance is expected to be healthy led by steady NIMs, no meaningful treasury gains/losses, moderation in slippages and normalised credit cost.
Our Perspective
As per latest RBI data, growth of 17.4% YoY for the overall banking sector indicates continued resilience in credit demand. Further, fag end of the fiscal year, being generally a busy season for the financial industry, is expected to keep the growth momentum unabated. A gradual shift of corporates towards banks and continued working capital demand from MSMEs is seen resulting in credit growth at 14-16% for FY23E (vs. earlier estimates of early double digit), which remains a positive phenomenon for the industry. The operational performance is expected to be driven by steady margins on the back of continued yield repricing and rising CD ratio offsetting higher cost of deposit, absence of significant treasury losses and steady slippages leading to stable credit cost. We expect PAT to report strong growth of 31% YoY. For our coverage universe, we believe GNPA should fall ~5 bps QoQ to 3.05%.
Management commentary on sustainability of credit growth and margin trajectory in FY24E needs to be watched. Further, behaviour of stressed book remains under the scanner to determine any substantial impact on RoA ahead. From our coverage universe, focus on the overall performance of SBI and HDFC Bank's segmental growth remains to be watched. Bandhan Bank will be under the scanner for future asset quality and credit cost guidance.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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