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Systemic credit growth remains robust at 16.5% for the fortnight ending 8th Mar’24, and we anticipate this trend to be mirrored across our coverage universe.

This healthy growth is fuelled by sustained momentum in retail and business banking, along with a gradual recovery in the corporate sector.

While the SME segment continues its steady expansion, the real estate sector is experiencing strong growth, supported by favorable industry trends.

We expect this positive momentum to continue, with home loans driving growth within the retail segment, accompanied by strong performances in vehicle finance and small business loans.

However, we anticipate some moderation in the unsecured segment due to tightening measures by the Reserve Bank of India (RBI).

While credit growth has been robust, deposit growth too has gathered pace on the back of aggressive competition, a push for deposits, and competitive TD rates offered by banks. As a result, the gap between credit and deposits narrowed to ~3.4% in Mar’24.

The CD ratio stays elevated at 80% as most banks will see healthy credit volumes amid the seasonally strong fourth quarter.

The bounce rate has decreased to 19% and stays benign vs. pre-COVID levels, indicating strong asset quality outcomes and a lack of visible stress in the near term.

The credit ratio also remained healthy at 1.79x in 2HFY24 but moderated from 1.91x in 1HFY24, thus providing an optimistic outlook for corporate credit quality.

4Q earnings growth should be supported by robust business growth, normalized opex, and controlled credit cost (which offsets continued NIM compression).

However, we expect the pace of the NIM squeeze to moderate vs. 3Q/2Q levels. Opex is likely to follow a normalized trend as banks continue with their investments in branches and technology, while the pace of employee hiring also remains healthy.

Slippages are likely to remain under control, which should drive continued improvement in asset quality ratios.

We estimate PSBs to report healthy earnings growth of 12% YoY/33% QoQ amid stable margins, decent growth, controlled opex, moderate treasury gains, and benign credit cost. from the 3Q levels, primarily due to wage-related provisions made in 3Q.

The ongoing improvement in asset quality is expected to continue, with controlled slippages, complemented by robust recoveries, upgrades, and sales to the NARCL, which will enhance asset quality ratios. Healthy PCR and a significant reduction in the SMA pool bode well for credit costs.

While the system’s overall growth remains robust, regulators have identified various issues in certain companies.

Consequently, there will be increased scrutiny of the overall growth of the financial sector as attention shifts toward effectively managing compliance and fostering growth.

We remain watchful on regulatory actions demanding increased vigilance and compliance from all entities involved.

Bank of Baroda (BoB): Buy| LTP Rs 268| Target Rs 310| Upside 15%

BOB is well capitalized for incremental growth prospects, likely to be driven by retail loans. Corporate Books too is witnessing a healthy recovery, resulting in robust loan growth. We estimate RoA/RoE of 1.2%/17.8% in FY25E.

ICICI Bank: Buy| LTP Rs 1,082| Target Rs 1,250| Upside 15%

The bank enjoys one of the lowest funding costs among private banks, helping the bank underwrite a profitable business without taking undue balance sheet risk.

Asset quality trends remain steady reflecting in the healthy GNPA/NNPA ratios. We expect the PAT growth to sustain at ~15% CAGR over FY24-26E.

(The author is Head – Retail Research, Motilal Oswal Financial Services)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

  • Published On Apr 8, 2024 at 02:00 PM IST

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