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Earnings growth likely to stay intact

Credit growth/NIMs to remain healthy; deposit traction in focus

* Credit growth to remain buoyant; estimate 15.7%/13.3% growth in FY23/24: We expect systemic loan growth to remain robust in 4QFY23, with a healthy credit growth of 15.7% YoY in Mar’23, driven by continued traction in the Retail and SME segments. The Corporate segment has also witnessed a gradual recovery, though a pick-up in capex would be key to sustain growth momentum. Home, Vehicle, Unsecured, and Small Business segments continue to do well, while demand for CV is also improving. The credit card business is seeing healthy momentum, with robust growth in spends.

* We will watch out for any change in the demand environment, given 1) the challenging macro situation, 2) elevated inflation, and 3) a high base effect. We estimate systemic loan growth of 15.7/13.3% in FY23/24

* Deposit accretion gaining importance; watchful of further rate hikes: Deposit rates have increased sharply over the past few months, with liability accretion gaining importance. However, the gap v/s credit growth still remains high. While we expect a stable-positive bias in margins in 4QFY23, the rise in the cost of deposits and further rate hikes would influence the margin trajectory in FY24. Margins are likely to see some pressure in FY24, in our view

* Asset quality and credit costs to remain under control: We estimate slippages to remain under control, which, along with recoveries, should improve asset quality. The restructured and ECLGS books have been resilient, which along with a low SMA book will keep credit costs under control in FY23. Though, we expect a slight uptick in credit costs in FY24.

* Estimate 44%/46% YoY PAT growth in 4QFY23/FY23; 21% CAGR over FY23-25E: We estimate our coverage universe to deliver ~44% YoY growth in PAT in 4QFY23 and sustain PPoP growth at ~30% YoY. In FY23, we expect private/PSU banks to report earnings growth of ~39%/~56% YoY. We estimate earnings growth of ~46%/24%/19% YoY over FY23/FY24/FY25.

Private Banks – PAT to grow ~23% YoY in 4QFY23

* We estimate private banks to report PPoP growth of ~26% YoY (4.5% QoQ) and PAT growth of ~23% YoY (5.6% QoQ) in 4QFY23. Earnings should remain healthy, aided by healthy business growth, healthy margins, and benign credit costs. However, opex could remain high due to continuous investments in business. We estimate 18% loan growth for private banks in FY23/FY24 each.

* Margins should witness a stable-positive bias, supported by healthy loan growth and continuous re-pricing of the floating rate book. However, we remain watchful of a rise in the deposit cost, which would keep margins under pressure over FY24. We estimate NII growth of ~30% YoY in 4QFY23, with AXSB at ~41%, ICICIBC at ~39%, KMB at ~33%, HDFCB at ~27%, and IIB at 19%

* Slippages are likely to remain under control across segments, barring BANDHAN (due to recognition from the SMA pool). Overall, we believe asset quality should continue to improve in 4QFY23, while the performance of the restructured, MSME and ECLGS books will be a key factor to watch out for

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