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ICICIBC (Buy)

* ICICIBC has substantially increased its PCR to ~80% as of 1QFY23 – the highest in the industry – and carries COVID-related provisions of INR85b (~0.9% of loans). Slippages have moderated over the past few quarters and we expect these to subside further. ICICIBC is well-cushioned, with higher provisions on its Balance Sheet, and has guided at normalization in credit costs from FY23.

* Steady mix of a high-yielding book such as Retail/Business banking, deployment of excess liquidity, and a low-cost liability franchise is aiding margin expansion, which improved to ~4.1%. Around 70% of its book is floating in nature, with ~43%/6% linked to repo/other EBLR, which will aid margin. We expect margins to remain healthy as growth in the SME and high-yielding Retail segment pick up.

* The bank is becoming a new growth leader in the SME and Retail segments, aided by continued investments in technology and partnerships with new ecosystem players. We expect a 19% loan CAGR over FY22-24 for the bank.

* ICICIBC has room for further re-rating as it continues on its journey to deliver consistent solid return ratios and sustainable growth, led by its focus on core operating performance. We estimate an RoA/RoE of 2.1%/17.0% for FY24. Adjusted for subsidiaries, the standalone bank trades at 2.1x FY24E ABV.

SBIN (Buy)

* SBIN has demonstrated a strong improvement in asset quality, which has been resilient over the past few quarters, aided by improved underwriting and significant mobilization in customer engagement by the recovery team. Fresh slippages moderated to a low of 1%, beating private peers, while PCR improved to 75%. This, coupled with controlled restructuring (1% of loans) and a low SMA book (25bp of loans), will drive a sustained reduction in credit cost to 0.8%.

* Retail growth is likely to remain strong. This, along with a pick-up in the SME and Corporate book (as the un-utilized limit continues to moderate), will support loan growth. Stable margin, deployment of liquidity, and reversal in the rate cycle (as ~75% of loans are floating in nature) will enable a recovery in NII.

* SBIN inarguably has one of the best liability franchises (CASA mix: ~45%). This puts it in a better position to manage funding cost in a rising rate regime. While there could be some increase in the cost of deposits, margin is likely to remain stable.

* SBIN appears well positioned to report a strong uptick in earnings. We estimate a FY24 RoA/RoE of 0.9%/16.7%. Subsidiaries account for ~32% of the total SoTP. Adjusted for subsidiaries, the bank trades at 0.9x FY24E ABV.

IIB (Buy)

* IIB’s consistent efforts in strengthening its liability franchise have been yielding results with Retail deposits mix increasing to 41%. LCR ratio too remains healthy at ~124%. We expect IIB to deliver 17% deposit CAGR over FY22-24E, while the bank has suggested increasing the mix of Retail deposits to 45-50%.

* Loan growth is witnessing strong traction across segments with healthy pick up in both Corporate and Retail loans. The focus remains on scaling up its key focus businesses and investing on new growth engines. We estimate loans to grow at 19% CAGR over FY22-24E. Improving business activity and a recovery in its core CV and MFI segments will aid overall portfolio growth.

* Asset quality risks are receding, with a gradual reduction in stress from the MFI and CV book. The restructuring book too moderated to 2.1% of loans, which will keep slippages under control. A healthy PCR of 72% and provisions buffer of 1.2% of loans will result in a moderation in credit cost to 1.3% by FY24.

* We thus expect IIB to deliver 40% earnings CAGR over FY22-24E, leading to RoA/RoE of 1.9%/16.1% in FY24E. IIB currently trades at 1.4x FY24E ABV.

FB (Buy)

* Asset quality ratios have improved, led by healthy recoveries and upgrades and moderation in slippages. CE stood healthy ~95% in 1QFY23, with no big-ticket account (over INR1b) on its watch-list. While we remain watchful of stress from the SME and Agri segment and a high restructuring book, we nevertheless expect slippages/credit costs to moderate to 1.3%/0.7% in FY24.

* CASA and retail TD constitute over 94% of total deposits. The bank has a lower cost of funds advantage v/s other mid-sized banks. This, along with a focus on cross-selling liability products to Corporate clients to garner salary accounts and a pick-up in loan growth, is likely to support margin.

* FB has been taking a cautious approach towards building its loan mix to higherrated Corporates and secured Retail loans. The mix of Retail loans improved to ~32% as of 1QFY23 (from 28.4% in FY19). We expect loan growth to remain healthy, resulting in a further improvement in its overall operating performance.

* We expect an RoA/RoE of 1.1%/13.3% by FY24. FB currently trades at 1.1x FY24E ABV.

SBILIFE (Buy)

* SBILIFE is seeing strong traction in premium growth across segments, with Individual WRP delivering a robust 29% growth over FY23 till date – much higher than the industry and other listed peers. Both the agency and banca channels are contributing to growth. We estimate a 27% APE CAGR over FY22-24, led by continued momentum in Non-PAR Savings and Protection products.

* The share of ULIP is likely to pick up while trends in Protection and Non-PAR segments are likely to remain healthy. This will continue to support VNB margin.

* Persistency ratios are likely to remain healthy across cohorts, while cost ratios may increase moderately on a revival in business growth. However, cost leadership is likely to continue.

* We estimate 35% VNB CAGR over FY22-24, with operating RoEV to sustain ~22% by FY24. We forecast margins to remain steady at ~30% over FY22-24. SBILIFE currently trades at 2.1x FY24E EV.

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