Top 5 financial stock picks by Motilal Oswal for this earnings season; Do you own any?

ICICI Bank: As per the brokerage, the lender has substantially increased its provision coverage ratio to 80 percent as per December quarter of FY22– the highest in the industry – and carries COVID-related provisions of ₹6,430 crore. Slippages have moderated over the past few quarters and it expects these to subside further sharply. The bank is well-cushioned, with higher provisions on its balance sheet and has guided for the normalization of credit costs from FY23 onwards, it added. MOSL further noted that the bank appears firmly placed to deliver healthy sustainable growth, led by its focus on core operating performance.

SBI: As per the brokerage, SBI continues to strengthen its balance sheet and improve its return ratios. The management’s focus has been on building a granular, high-quality loan portfolio, while maintaining a strong focus on underwriting, which has aided a sustained turnaround in its operating performance, noted MOSL. Asset quality has also been resilient over the recent past, boosted by improved underwriting and significant mobilization in customer engagement by the recovery team, added the brokerage.

HDFC Bank: HDFC Bank has been delivering a healthy growth in advances, driven by strong sequential trends in Retail loans, said the brokerage. It expects a strong uptick and thus estimates loans to report a 17 percent CAGR over FY22-24, propelled by focused lending to highly rated corporates and a healthy revival in retail loans, particularly the unsecured business. Asset quality remains robust with credit costs undershooting the long-term trend, it added. HDFC Bank is thus increasing the contingency buffers prudently, which provides comfort and limits the adverse impact on profitability, noted MOSL.

AU Small Finance Bank: MOSL said the lender has stepped up its efforts towards building a strong liability franchise, with an enhanced focus on growing retail deposits. The CASA ratio too has improved to 39 percent as of Q3FY22 and is likely to grow further as customer vintage improves, it noted. A rise in the retail deposit mix has resulted in a significant improvement in the cost of funds, which would continue to support margins, added the brokerage. It further stated that a high mix of the secured book, coupled with strong underwriting and efficient collection management, has enabled the lender to report stable asset quality despite various headwinds.

SBI Life: SBI Life has witnessed a strong traction in premium growth across segments with individual weighted received premium (WRP) delivering a growth of 38 percent over FY22YTD – much higher than the industry and other listed peers, noted the brokerage. It further informed that the share of ULIP has also picked up and is showing improving trends. The management, however, has started focusing more on the Protection/Non-PAR segments which would continue to underpin value of new business (VNB) margin expansion, added MOSL. Persistency ratios are holding up well across cohorts, while cost ratios may increase moderately on revival in business growth, said the brokerage.