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Time for a Balancing Act

Gap widens between credit and deposit growth

The credit-deposit growth gap sustains albeit lower YoY with credit at 16% YoY and deposit at 12% YoY. Liquidity remains tight, which would put pressure on deposit rates and margin. The reliance on CP, CD and NCD has risen on the credit-deposit gap and RBI norms (lending to NBFC). Total lending growth (loan+NCD+CP) has risen by 14% YoY.

Liquidity remains tight

The 10Y GSEC has come off 7bp MTD and 12bp YTD. Shorter duration yield (five-year corporate bonds) have fallen slightly while tenor spread remains steady. Banks’ average lending rate was steady, as per RBI data, but term deposit rates have risen, indicating further NIM pressure in Q3.

Strong growth in retail payment continues

Payments grew 15% YoY with retail growth at 22% YoY. UPI sustained at >40% YoY growth and credit card transactions at INR1.7tn. The number of credit cards grew 1.4% MoM and 19% YoY. Spend looks lower for November post the festival season; however, on a rolling three-month basis, spend growth is steady at 2.6% MoM albeit soft.

Soft traction in life & general insurance

Life insurers’ APE growth down 14% YoY in November, with dip of 27% YoY in LIC & 2% decline in private. Individual APE was down 4% YoY, with LIC shrinking 8.7% & private at 1.3%. GI saw softer growth at 10.6% YoY, with diversified insurers at 8% YoY growth (private at 9.3% and PSU flat YoY). Standalone health insurers saw 22% YoY growth.

AMC SIP flows at historical high

AUM traction remains healthy as indices performed well, with interest augmentation for index and thematic funds. SIP accounts surged to 74.4mn in November vs 73mn in October, up 23.1% YoY, which is at a historical high.

Price roundup: PSU banks and non-lending outperforms

In the past month, the Bank Nifty outperformed the Nifty by 2%, although it underperformed by 8% in the past year. PSU banks and nonlending financiers have outperformed.

Outlook for CY24: time for a balancing act

Banks against the juxtaposition of CY23 that has seen crescendo of strong financial performances with sectoral tailwinds may see onset of CY24 likely throwing up few challenges. However, we expect banks to conduct a smart balancing act, led by resilient profitability and strong fundamentals. The absence of significant asset quality challenges and better growth would ensure PSU banks sustain rerating based on earnings stability. NBFC are set to sustain healthy 22% YoY growth, due to cyclical tailwinds and strong capital base. Business traction will likely hold in H2FY24, although slightly slower than in H1FY24, despite regulatory clampdown on unsecured retail. In our view, funding cost spike is imminent across the board, primarily due to repricing of high cost borrowings and regulatory norms. Credit cost is expected to rise in H2FY24, in line with regulatory restraints, but we expect no meaningful negative

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