EUR 120.00 For Business Accounts Only

MOSL: FINANCIALS: BANKS AND INSURANCE | 2QFY23 PREVIEW: Earnings progression on track amidst volatile macro

Financials: Banks and Insurance | 2QFY23 PREVIEW: Earnings progression on track amidst volatile macro

• Credit growth showing significant strength: Systemic loan is witnessing a continuous revival, with credit growth accelerating to ~16% YoY in Sep'22 (nine-year high), led by continued traction in the Retail and SME segment, while the Corporate segment is also seeing a revival, led by improved working capital requirements. Home, Vehicle, Unsecured, and Small Business continue to do well, while the demand for CV is also improving. Credit Cards business is seeing a healthy momentum, with spends remaining strong.
• We believe that deposit growth will be a key focus over the next few quarters, given the RBI's stance on further rate hikes and tightening liquidity. Deposits rates are likely to increase to aid liability accretion and fund credit growth. The rise in cost of deposits would be key to assessing the margin trajectory over FY24.
• While any material change in the demand environment needs to be monitored, given the challenging macro, we estimate loans to grow by 13%/14% YoY in FY23/FY24. We expect our Banking Coverage Universe to deliver ~41% YoY growth in PAT in 2QFY23, while PPoP to grow at a modest ~13% YoY.
• Estimating 29% CAGR in earnings over FY22-24E: Our estimates indicate steady traction in earnings over FY23/FY24. We expect Private/PSU Banks to report an earnings growth of ~32%/~34% YoY in FY23. Our Banking Coverage Universe is likely to report an earnings growth of ~33% YoY in FY23 and 25% in FY24, after posting a growth of ~45% in FY22.
• Asset quality and credit cost to remain controlled: We estimate slippages ex of restructuring to remain controlled, which along with healthy recoveries and upgrades, will result in a continuous improvement in asset quality. While the performance of restructured and ECLGS book will be closely monitored, we expect credit cost to remain under control, while the balance sheet strengthens further.

Private Banks - PAT to grow ~53% YoY in 2QFY23

• We estimate Private Banks to report a PPoP growth of ~13% YoY (+13% QoQ) and PAT growth of ~53% YoY (+8.7% QoQ) in 2QFY23. Earnings are likely to remain healthy, led by higher business growth, NIM expansion, and a sustained reduction in credit cost.
• Loan growth is projected to remain strong. We forecast Private Banks loan growth at 18%/19% over FY23/FY24. We estimate ICICIBC to deliver a loan growth of ~23% YoY over 2QFY23 and KMB/AXSB to grow by ~25%/18%. HDFCB/IIB reported a strong growth of ~23%/~18% YoY.
• Margins to witness positive bias in near term, supported by pick up in loans growth and rising interest rates as floating rate loan portfolio gets repriced. However, we remain watchful of a rise in cost of funds to assess the margin impact over the medium term. We forecast NII growth of ~20% YoY, with KMB ~28%, AXSB ~23%, ICICIBC ~22%, IIB ~18%, and HDFCB at 16% in 2QFY23.
• Slippages ex of restructuring to remain controlled. Slippages ex of restructuring are likely to remain controlled across segments, barring BANDHAN, which can see elevated stress due to the recognition of floods/restructuring/SMA impact. Overall, we expect a continuous improvement in asset quality. The performance of the restructured and ECLGS book will be a key monitorable.