Banking sector earnings preview: Q3 will be another strong quarter, says Sharekhan; Here are its top picks

System-level credit off-take increased by 17.4 per cent year-on-year in the fortnight ended December 16, 2022, indicating sustained credit growth given the recovery in the economy and specific signs of revival in investment and credit demand gives.

As per recent media reports, the net profit of Public Sector Banks is estimated to reach a milestone 1 lakh crore by the end of the current financial year.

Further, on January 06, the RBI in its Financial Stability Report stated that gross npa ratio The number of banks has fallen to a 7-year low of 5 percent and the banking system remains strong and well-capitalised.

Going Forward, Brokerage Firms sharekhan The banking sector is expected to report a healthy performance in the third quarter. The brokerage said banks in its coverage universe are expected to report 35 per cent year-on-year earnings growth in Q3FY2023E, driven by healthy loan growth and lower credit costs. Net interest income (NII) growth is expected to exceed 23 per cent YoY on the back of solid loan growth.

However, due to the increased cost of deposits for securing a higher portion of retail liabilities, the brokerage expects the margin expansion to be lower in comparison to the previous quarter.

While non-interest income performance for banks will continue to be weak, due to lower treasury income, asset quality may further improve or remain stable with minor slippage, according to brokerages.

Sharekhan hopes in private banks ICICI Bank, axis BankAnd Kotak Mahindra Bank To report strong advance growth of 20 percent YoY, 16 percent YoY, and 23 percent YoY, respectively.

HDFC Bank posted a healthy advance growth of 19 per cent YoY in Q3, however, loan growth declined sequentially to 1.8 per cent QoQ versus 6.1 per cent in the previous quarter.

In mid-tier private banks, IndusInd Bank And Federal Bank Both reported solid loan growth at 19 per cent YoY, respectively, for the quarter ended December.

In small private banks, AU Small Finance Bank registered a healthy AUM growth of 39.4 percent. The brokerage said loan growth in the retail and SME segments remains strong, while the corporate loan segment is witnessing a pick-up due to some capex demand.

Among public sector banks, top PSU banks are expected to report annual growth in advances of 16-18 per cent, while other PSBs are likely to report growth at par with system growth.

Overall deposit growth is expected to pick up as deposit rates have risen sharply in the last few months. However, the gap between credit and deposit growth is still wide, the brokerage pointed out.

HDFC Bank and Federal Bank sequentially saw deposit growth outpacing loan growth, mainly on account of higher fixed deposit growth.

Having said that, the brokerage said that near term risk for the sector would remain due to hardening of interest rates across the globe, and its impact in the form of exchange rate volatility and extreme tightening in the local market. ,

Second, consensus estimates for GDP have been lowered for calendar year 2023. However, “we believe that there could be some deceleration in loan growth in FY2024E, which may be partly due to higher base effect and increased CD ratio rather than asset quality at this stage of the cycle.”

It added that the major discussion points would be on deposit strengthening, mobilization growth and peak NIM for banks.

Axis Bank, ICICI Bank and HDFC Bank are Sharekhan’s preferred choice among private banks. SBI and PNB continue to be the top choice of brokerages in the PSB sector. AUSFB was its preferred choice among small private banks, and Federal Bank was its top choice among mid-tier private banks.

disclaimer, The views and recommendations expressed above are those of the individual analysts or broking companies and not those of Mintzeny.