IGI Logo

In Q1FY23E, we expect core earnings to remain strong with strong traction in advances, healthy margin profile and decline in credit cost across lenders. However, rising yields could play spoilsport resulting in mark to market losses thereby impacting earnings momentum. Expect strong commentary in terms of recovery in credit demand and, thus, outlook on business momentum, which could be positive. While operational performance is expected to remain positive across lenders, higher impact of increasing yields is to be seen on PSU banks thereby arresting earnings momentum.

As the impact of the pandemic continues to fade away, credit offtake in the financial system has been gathering momentum. Latest RBI data suggests ~2% sequential growth in March-June 2022, which is generally against the usual trend. However, with underlying demand being strong this time around, Q1FY23E is expected to be exceptional in terms of growth compared to the earlier corresponding years.

For banks and NBFCs, following are key expected highlights:

* For our coverage universe, credit growth is expected to be above industry at ~16% YoY to | 66.5 lakh crore, driven by retail (home, auto & credit card) and MSME segment. Latest RBI fortnightly data has indicated growth of 12.1% YoY for the overall banking sector compared to ~10% mark in the previous quarter, indicating further pick-up in credit growth trajectory. Thus, NII is expected to grow 16% YoY aided by healthy business growth and steady NIM. A better understanding on growth segments and view on sustainability of credit momentum should remain key

* Deposit traction is expected to remain at ~9% YoY, with slight improvement in CASA YoY though QoQ CASA may decline

* NIMs are expected to be largely steady, with some positive bias of 2-4 bps sequentially as banks have increased lending rates while deposit rates are expected to catch up with a lag

* Asset quality is expected to be less concerning with confidence shown by the management as collection activity are showing improving trends. Stress behaviour in the MSME segment needs to be monitored as increasing interest rates and end of moratorium could have built up pressure. For our coverage universe, we believe GNPA should decline ~10 bps QoQ to 3.4%

* Hardening of interest rates is expected to negatively impact treasury income, especially for PSU banks. However, banks have built investment fluctuation reserve, which could be utilised to offset losses, though bank’s stance is to be seen

* Credit cost on a sequential basis should decline as asset quality improves. Also, in the last quarter, few banks had taken excess provisions to strengthen balance sheet and some for write-offs, which may not be the case in Q1FY23. Hence, we expect PAT to report healthy growth of 37% to | 27975 crore due to healthy topline show and low credit cost

Guidance on credit growth to be key to watch

We believe the growth aspect for the current quarter has largely been factored in with announcement of pre-results update. However, management commentary on business growth for FY23E would be key as this would indicate sustainability. Commentary on asset quality, especially book behaviour in the MSME segment, would be key to watch.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

SEBI Registration number INZ000183631

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer