Banking sector earnings preview: Q3 to be one other robust quarter, says Sharekhan; listed here are its prime picks

The system-level credit score off-take grew by 17.4 % y-o-y within the fortnight ending December 16, 2022, indicating mortgage progress has been sustained, given distinct indicators of an enhancing economic system and a revival of investments and mortgage demand.

As per current media studies, the online revenue of public sector banks is estimated to achieve a milestone of ₹1 lakh crore by the top of the present fiscal yr.

In addition, on January 06, the RBI in its Financial Stability Report mentioned that the gross NPA ratio of banks has fallen to a 7-year low of 5 prcent and the banking system stays sound and effectively capitalised.

Going ahead, brokerage agency Sharekhan expects the banking sector to report a wholesome efficiency in third quarter. The brokerage mentioned the banks in its protection universe are anticipated to report 35 % year-on-year earnings progress in Q3 FY2023E, pushed by wholesome mortgage progress and decrease credit score prices. Net curiosity revenue (NII) progress is predicted to be greater at 23 % YoY on account of strong mortgage progress, it mentioned.

However, because of the elevated value of deposits to garner the next share of retail liabilities, the brokerage expects the magnitude of margin enlargement to be decrease than within the earlier quarter.

While the non-interest revenue efficiency for banks would proceed to stay weak, led by decrease Treasury revenue, asset high quality might enhance additional or stay steady with modest slippages, in keeping with the brokerage.

Among non-public banks, Sharekhan expects ICICI Bank, Axis Bank, and Kotak Mahindra Bank to report robust advances progress of 20 % YoY, 16 % YoY, and 23 % YoY, respectively. 

HDFC Bank delivered wholesome advances progress of 19 % YoY in Q3, nevertheless, mortgage progress moderated sequentially to 1.8 % QoQ vs. 6.1 % within the earlier quarter.

In mid-tier non-public banks, IndusInd Bank and Federal Bank each reported strong mortgage progress at 19 % YoY, respectively, for the December ending quarter.

Among small non-public banks, Au Small Finance Bank delivered a wholesome AUM progress of 39.4 % YoY. Loan progress throughout the retail and SME segments continues to be robust, whereas the company mortgage phase is seeing a pick-up, led by some capex demand, the brokerage added.

Among public sector banks, the highest PSU banks are anticipated to report 16–18 % YoY progress in advances, whereas different PSBs are more likely to report progress equal to the system’s progress.

Overall, deposit progress is predicted to realize traction as deposit charges have risen sharply throughout banks over the previous few months. However, the hole between credit score and deposit progress nonetheless stays massive, the brokerage identified. 

HDFC Bank and Federal Bank noticed deposit progress outpacing credit score progress sequentially, primarily as a result of greater time period deposit progress.

Having mentioned that, the brokerage acknowledged the near-term danger for the sector shall be current on the again of rate of interest tightening being witnessed throughout the globe, and its influence might be within the type of trade charge volatility and extreme tightening within the native market.

Secondly, consensus estimates for GDP have been lowered for CY2023. However, “we imagine there might be some slowdown in mortgage progress in FY2024E, which can be partial (as a result of the next base impact and an elevated CD ratio), slightly than on asset high quality at this stage of the cycle,” it mentioned. 

Key dialogue factors could be round strengthening deposits, mobilisation progress, and the peaking of NIMs for the banks, it added. 

Axis Bank, ICICI Bank, and HDFC Bank are Sharekhan’s most well-liked picks amongst non-public banks. SBI and PNB proceed to be the brokerages’ prime selections within the PSBs house. AUSFB was its most well-liked decide within the small non-public banks, and Federal Bank was its best choice within the mid-tier non-public banks.

Disclaimer: The views and proposals made above are these of particular person analysts or broking corporations, and never of MintGenie.

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