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Strength in business momentum to boost profitability - BFSI Preview
What's Buzzing
The banking sector remained abuzz led by the MPC pause, strong earnings season expectation across private banks on the basis of initial business updates while PSU banks are seen maintaining their robust recovery path.
Context
The provisional figures of banks for March 2023 quarter indicated robust traction in credit growth at ~20% YoY. Hence, the momentum in business growth and operational performance to be healthy led by steady NIMs. No meaningful treasury gains/losses with no major movement in yield and expect moderation in slippages and normalised credit cost.
Our Perspective
The latest RBI data has indicated growth of ~15.7% YoY (as on March 10, 2023) for the overall banking sector indicating a continuous improvement in credit offtake. Margins are nearing their peak as cost of funds is anticipated to rise at a faster pace compared to yields. Hence, commentary on margin trajectory amid rising deposit rates will remain in focus. The fag end of the fiscal year, which is generally strong for the financial industry, is expected to witness traction in retail credit. Further, MSMEs/NBFCs are turning to banks for working capital limits. Credit to industry has picked up growing 7% YoY (February 2023) and remains a silver lining for a further recovery. In our view, liabilities accretion strategy along with margin trajectory remain a key catalyst to drive valuation as asset quality is no longer a concern. Adequate provision coverage is seen keeping credit cost steady. For our coverage universe, we believe GNPA should fall 10-15 bps QoQ to ~2.9%. For Q4FY23, expect net interest income (NII) momentum of 24% YoY. Earnings growth (YoY) is expected to be largely flat for banks in our coverage (both PSU and private banks) mainly dragged by one-off impact of integration expenses in Axis Bank (excluding this, growth is expected to be strong at ~36% YoY). Accordingly, private banks are expected to report de growth of ~35% YoY in earnings led by dent in Axis Bank’s earnings (excluding Axis Bank, private banks' earnings growth to be at ~13% YoY)
| NII | Change (%) | PPP | Change (%) | NP | Change (%) | ||||
| Q4FY23E | YoY | QoQ | Q4FY23E | YoY | QoQ | Q4FY23E | YoY | QoQ | |
| Public Sector Banks | |||||||||
| Bank of Baroda | 11000.5 | 27.7% | 1.7% | 7453.6 | 32.3% | -9.5% | 3615.6 | 103.3% | -6.2% |
| SBI | 38500.7 | 23.4% | 1.1% | 24787.5 | 25.7% | -1.7% | 15114.2 | 65.4% | 6.4% |
| Total | 49501.2 | 24.3% | 1.3% | 32241.1 | 27.2% | -3.6% | 18729.7 | 71.6% | 3.7% |
| Private Banks | |||||||||
| Axis Bank | 11742.2 | 33.1% | 2.5% | -2933.0 | -145.4% | -131.6% | -5486.7 | -233.2% | -193.7% |
| Federal Bank | 1987.9 | 30.3% | 1.6% | 1279.0 | 60.2% | 0.4% | 823.1 | 52.3% | 2.4% |
| HDFC Bank | 22985.9 | 21.8% | 0.0% | 19335.8 | 18.2% | 1.6% | 11981.0 | 19.2% | -2.3% |
| IDFC Bank | 3509.9 | 31.5% | 6.8% | 1340.6 | 62.2% | 6.3% | 649.3 | 89.5% | 7.4% |
| Indusind Bank | 4693.8 | 17.8% | 4.4% | 3704.7 | 11.3% | 0.7% | 2014.8 | 48.0% | 2.8% |
| Kotak Bank | 5946.7 | 31.5% | 5.2% | 4144.5 | 24.1% | 7.7% | 2984.8 | 7.9% | 6.9% |
| Bandhan Bank | 2279.5 | -10.3% | 9.6% | 2115.3 | -16.1% | 10.0% | 688.4 | -63.8% | 136.9% |
| CSB Bank | 344.1 | 13.3% | -1.6% | 189.8 | 33.6% | -1.9% | 145.5 | 11.3% | -6.7% |
| Total | 53490.0 | 23.7% | 2.3% | 29176.8 | -13.6% | -27.9% | 13800.2 | -35.0% | -44.2% |
| Total Banks | 102991.1 | 24.0% | 1.8% | 61417.9 | 3.9% | -16.9% | 32529.9 | 1.2% | -24.0% |
| HDFC | 5024.1 | 15% | 3.8% | 5350.0 | 6.5% | 7.4% | 3868.3 | 4.5% | 4.8% |
| Bajaj Finance | 7571.8 | 24.9% | 1.9% | 4952.9 | 24.9% | 2.1% | 3031.8 | 25.3% | 2.0% |
| Bajaj Finserv | 23765.8 | 26.0% | 9.2% | 4474.0 | 29.2% | 1.2% | 1707.3 | 26.8% | -4.2% |
| SBI Life Insurance | 19517.5 | 12.0% | 1.8% | 1536.6 | 17.7% | 418.4% | 756.1 | 12.5% | 148.6% |
| HDFC Life Insurance | 17207.9 | 20.4% | 19.7% | 603.0 | 9.2% | 30.7% | 377.3 | 5.5% | 19.7% |
| HDFC AMC | 665.3 | 14.5% | 0.4% | 503.0 | 13.6% | 0.5% | 379.8 | 10.5% | 2.8% |
| Muthoot Finance | 1846.4 | 7.3% | 8.3% | 1322.4 | 8.2% | 4.7% | 948.5 | -1.2% | 5.2% |
| Star Health | 3009.2 | 14.8% | 4.9% | 153.8 | -198.2% | -53.5% | 115.7 | -195.1% | -55.8% |
| ICICI Lombard | 4558.4 | 14.7% | 9.5% | -277.6 | -10.1% | -5.4% | 360.1 | 15.2% | 2.1% |
| Total | 83166.3 | 19.0% | 8.0% | 18618.1 | 20.0% | 10.7% | 11545.0 | 15.6% | 5.4% |
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