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MOSL: FINANCIALS-The rising significance of liability franchise; Assessing the trends

Financials: The rising significance of liability franchise; Assessing the trends; looking at liability based valuation multiples

 

• Systemic credit growth has recovered to a five-year-high of ~14%, while deposit growth remains modest at 10%. We expect credit growth to remain strong, given the improving economic parameters and rising share of banks in the total credit needs of the economy. Key beneficiaries of this trend will be lenders with strong liability franchisee, as it will allow smooth flow of funds at reasonable costs.
• On analyzing the key trends, we note that: (a) Private banks' share in total deposits has increased to 27% from 18.6% in FY14. (b) CASA market share of private banks has increased from 21.7% in FY14 to 28.8%, while the share of banks offering differential SA rates has increased to 5% from 1.4% in FY14. (c) Jan Dhan deposits formed 9% of incremental SA deposits for PSU banks.
• Reserve Bank of India (RBI) has issued 12 banking licenses (including SFBs) over the past five years, as against 12 licenses in the preceding 20 years. This has allowed conversion of many non-bank lenders into banks and enabled them access to stable and low cost liabilities. Recent funding issues in the financial sector have again stressed the need of the liability franchisee. This consideration will drive M&As, going forward. The RBI, too, will step in support of such moves, in our view.