Despite ongoing rate hikes from the Reserve Bank of India, which has lifted interest rates by 190 basis points so far in 2022, the credit growth of commercial banks has remained strong as it grew by 16.2% in the fortnight that ended on September 9, according to RBI data, the highest increase in about nine years, thanks in part to increases in personal loans, mortgage loans, and corporate loans.
The acceleration in credit growth will boost frontline bank margins in Q2, said domestic brokerage firm Prabhudas Lilladher in its earnings preview report.
The brokerage firm expects its coverage banks to report 4.0% QoQ loan growth, 2.9% deposit growth, and 5.5% NII growth, with NIM increasing by 9bps QoQ to 3.74%. The expansion of net interest margins for private banks will be higher by 11(bps) compared to 5(bps) for PSU banks as the proportion of repo-linked loans is higher for private banks, it noted.
It also expects the bank's core PAT may come in at ₹387 billion. Among frontline banks, positive outliers on a core PAT basis could be ICICI bank, Kotak Mahindra bank, and Axis bank, while among mid-caps, Federal bank may outperform, it said.
It estimates the AUM growth of HFCs for its coverage universe will rise by 2.8% compared to an NII rise of 1.5%. The net interest margin may decline 5bps to 3.13% as the repricing of liabilities is usually faster compared to assets. It expects other income may grow by 11% QoQ, while Opex might decline QoQ, leading to sequential PPoP growth.
Asset quality may improve QoQ with stage 3 at 2.82% (-6 bps QoQ), although provisions may slightly rise. It expects the overall PAT to be ₹425 billion (+2.8% QoQ).
The system's growth in August 2022 continued to inch up (+14.8% YoY). Of the major segments, retail remains a key driver, while services continue to see improved offtake from NBFCs. Momentum in agriculture continues, while industrial credit growth sees a sharp improvement with +10% YoY growth.
It said that the loan growth for its coverage banks is expected at 20% YoY and 4% QoQ compared to 16.2% for the system (9th Sep’22 over 30th Jun’22). As of September 9th, 2022, system deposit growth was 9.5% YoY, although TD growth (+5% YTD) is outpacing that of CASA (-5% YTD)
A sharp rise in systemic rates and transmission of the same would lead to higher NII and thus better NIM, it highlighted. With improved offtake, other income and Opex are expected to increase. However, Opex growth would be slower than total income, providing a cushion to core PPoP. Provisions could be a tad higher. Overall earnings could improve primarily, led by better NII, thereby leading to better earnings.
The brokerage firm expects asset quality to be steady as slippages could slightly soften QoQ, although credit costs may witness a minor increase. Retail and MSME could see slippages from the OTR pool, while corporate is expected to remain resilient. It expects the provision of its coverage universe to increase by 11bps on a quarterly basis, to 0.82%.
Prabhudas Lilladher forecasts 21% YoY and 7.0% QoQ NII growth for private banks, as both credit growth and NIM could see an increase in QoQ rate hikes. Loan growth may be higher than the system. The NIM increase would be driven by the increase in yields outpacing the rise in funding costs as asset repricing would be faster than that of liabilities, moderation in deposit growth and the deployment of excess liquidity towards lending. It expects the fee income will improve due to better volumes, while MTM losses are expected to subside.
According to the brokerage, core earnings for its coverage large private banks will see at 1.1% uptick, mainly led by NII growth for its coverage bank.
It forecasts loan growth of 18% year on year for mid-cap banks, compared to 20% for large banks, and NII growth of 16% year on year for mid-cap banks, compared to 18% for large banks.
PSU banks might see loan growth in line with the system, while NII growth may be higher at 15% YoY. “We expect NIMs to remain steady QoQ near 3% levels. Asset quality could improve QoQ with GNPA declining, leading to controlled credit costs. Earnings are expected to be better as NII and fee income improves with controlled opex,” said the brokerage.
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