Mr. Gaurav Jani, Research Analyst - Prabhudas Lilladher Pvt. Ltd.
The fourth quarter is seasonally strong for banks which coupled with a softer covid impact should lead to better systemic credit growth of 9-10% YoY in Mar'22 (vs 8% in Feb'22). Deposit growth has been moderating which would result in higher LDR, protecting margins. With the economy opening up further, private banks should see healthy loan growth while SME focused banks could see better asset quality. We expect our private banks to witness a strong loan growth of 16.6% YoY and with margins remaining stable, NII accretion may be 18% YoY. However, higher business expenses might be a drag on PPoP. Asset quality may further improve and earnings are expected to be a tad better sequentially.
Coverage PSU banks should see loan growth in tandem with the system while PPoP may soften a bit QoQ since Q4 usually sees higher opex. Earnings could see a QoQ blip led by higher opex and provisions.
Key monitorables would be 1) performance of the ECLGS and restructured portfolio 2) commentary on capex and offtake in corporate credit and 3) treasury Income outlook given the hike G-Sec yields.
Our coverage HFCs might see a loan growth of 12.9% YoY. NIM is expected to see a QoQ moderation as rates have started hardening. PPoP may witness a sequential decline led by higher opex due to more business volumes. Asset quality might remain stable QoQ at 3.2% with provisions also expected to be in control. Overall PAT to see a slight blip QoQ led by lower PPoP.
We prefer HDFCB, AXSB, FB and DCB among banks and Canfin in HFCs.
- Systemic loan growth revives to +8% YoY; deposit momentum slows: System growth revived to +8% YoY in Feb'22 from 6.5% last year. Of major segments, momentum in retail continues while industrial credit is improving gradually. Within retail unsecured credit, vehicle loans, and credit card loans enhanced while within services, trade and NBFC saw better offtake. Growth in industries has largely been driven by MSME although corporate has been improving. For coverage banks, overall loan growth is expected at 12% YoY and 4.7% QoQ. Private banks would outperform with aggregate credit growth of 16.6% YoY in Q4FY22. Systemic deposit growth has slowed to 8.8% from 10-11%, while CASA continues to outgrow TD.
- Asset quality outlook remains solid: Asset quality is expected to further improve due to moderation in slippages while recoveries/upgrades could also soften QoQ. As larger banks have an adequate PCR ranging from 70-80%, credit costs may be controlled. Retail and MSME could see better recoveries while corporate is expected to remain resilient. For our coverage universe, GNPAs are expected to decline by 10bps QoQ to 4.5%. Performance of the ECLGS and restructured pool remains a key monitorable.
- Funding cost may rise QoQ; stable credit costs to protect earnings: Cost of funds may rise due to hardening of interest rates which would be offset by higher LDR that may safeguard NII growth. Modest treasury income and relatively elevated opex QoQ may lead to contraction in PPoP although, moderation in credit costs may protect overall earnings.
- Private Banks - For Private banks, we expect a healthy NII growth of 18% YoY & 5% QoQ, as lending activity gained further momentum. Driven by strong loan growth, fee income could see an uptick that would be offset by higher opex. Funding cost is expected to rise as interest rate cycle moves upwards however, NIM may be flat be QoQ, supported by moderation in deposit growth and deployment of excess liquidity towards lending. For coverage banks, earnings should remain flat sequentially. The larger banks like HDFC, ICICI and Axis would see a QoQ uptick in PAT while Kotak Bank may see a decline in PAT as last quarter saw provision reversal.
HDFCB might see a 11% QoQ growth in PAT while NIM is expected to uptick due to better loan growth.
Kotak Bank could continue improvement in loan growth although PAT might decline QoQ, owing to higher provisions.
ICICIBC might maintain it loan growth momentum as retail continues to grow well. Asset quality should moderate resulting in better earnings.
Axis loan growth which was lagging, has improved in-line with peers. This is expected to be maintained while margins may remain stable.
- Mid Cap Banks - Our coverage mid-cap banks could see lower loan growth of 11% YoY compared to large banks while NII growth might be stronger at 24% owing to NIM improvement to 4.3% from 3.9% a year ago as Q4FY21 saw higher slippages due to the second wave. On a QoQ basis margins may remain flat. Mid-cap banks might see a greater reduction in GNPA QoQ (barring IDFC First) especially CUBK and DCB driven by lower slippages, healthy recoveries and higher loan growth.
- Public Sector Banks - PSU banks might see loan growth in-line with the system while NII growth may be higher at 12% YoY owing to lower slippages. We expect NIMs to remain steady QoQ near 3% levels. Asset quality could improve QoQ with GNPA declining leading to controlled credit costs. Earnings might remain stable sequentially.
- Housing Finance Companies - Coverage HFCs might see credit offtake of 12.9% YoY with mid-sized HFCs likely to see 20%+ YoY growth while large HFCs are expected to see a loan growth of 10-14%.
HDFC and LICHF might see continued momentum in credit offtake mainly led by individual housing while higher volumes might lead to more other opex impacting PPoP and PAT. Asset quality might be stable QoQ.
Canfin and Aavas might see a sequential improvement in earnings mainly led by better disbursals and reduction in credit costs