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MOSL:FINANCIALS: BANKS AND INSURANCE | 1QFY23 PREVIEW: Earnings outlook resilient; remain watchful of treasury performance

• Credit growth gaining traction: Systemic loan is witnessing a healthy revival, with credit growth accelerating to ~12.1% YoY as of 17^th Jun’22, led by continued strength in the Retail and SME segment, while the Corporate segment is also seeing a revival. Disbursement growth across several Retail products has surpassed pre-COVID levels, while Corporate growth was led by improved utilization levels and working capital requirements. Among segments – Home, Vehicle, Unsecured, and Small Business continue to do well, while the demand for CV is also improving. The Credit Cards business is seeing a healthy momentum, with spends remaining strong over 1QFY23.
• While an uncertain macro and rising inflation can impact the demand environment, we estimate loans to grow by ~12%/13.5% YoY in FY23/FY24. We expect our Banking Coverage Universe to deliver ~26% YoY growth in PAT in 1QFY23, while PPOP will undergo a marginal YoY decline, largely due to higher MTM losses.
• Earnings to remain steady: Our estimates indicate steady traction in earnings over FY23/FY24, even as we expect treasury income to be subdued and near-term OPEX to remain elevated, likely to be offset by an uptick in NII and lower credit cost. We expect Private/PSU Banks to report an earnings growth of ~29%/~26% YoY in FY23. Our Banking Coverage Universe is likely to report an earnings growth of ~28% YoY in FY23, after posting a growth of ~45% in FY22.
• Asset quality and credit cost to remain controlled: We estimate slippages to remain controlled, which, along with healthy recoveries and upgrades, will result in a continuous improvement in asset quality across Banks. While the performance of restructured and ECLGS book will be important to assess the credit cost trajectory, we expect credit cost to remain under control, while the balance sheets strengthen further.

Private Banks – PAT to grow ~40% YoY in 1QFY23

• We estimate Private Banks to report a PPOP growth of 7.4% YoY (-2% QoQ) and PAT growth of 39.8% YoY (-13.5% QoQ) in 1QFY23. 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 loans by Private Banks to grow by 18%/19% over FY23/FY24. We estimate ICICIBC to deliver a loan growth of ~20% YoY over 1QFY23 and KMB/AXSB to grow by ~29%/19%. HDFCB/IIB reported a growth of ~22%/~18% YoY.