Banking, Financial Services Q4 Results Preview - Earnings Momentum Likely To Continue For Banks: Nirmal Bang

Nirmal Bang Report

We expect banks to report strong earnings growth on a sequential basis for Q4 FY23, driven by credit growth, margin expansion on YoY basis and muted credit costs.

We expect margins for select banks to contract on a sequential basis due to increase in cost of deposits. We expect our set of coverage banks to report net interest income growth of ~27% YoY while operating profit growth is likely to be ~9% YoY (dragged down largely because of one-time cost of CITI acquisition by Axis Bank Ltd.).

We are building in 11.2% YoY growth in net profit, led by 16.5% YoY growth in loans and muted credit costs. Net interest margins are expected to improve on YoY basis while the same is likely to witness some moderation on a sequential basis.

Moreover, deposit mobilisation and increasing cost of funds would be key monitorables. Credit growth, as indicated by Reserve Bank of India data, suggests that demand has sustained, driven by retail and services segments.

In the retail segment, momentum in unsecured high-yielding loans continues while secured mortgage and vehicle loans remain key growth drivers. However, the industrial segment has witnessed some moderation.

Asset quality outlook continues to improve as we don’t anticipate any major surprises in either retail or corporate segment.

Large private banks are expected to report healthy growth (16.8% YoY loan growth) while mid-cap/small-cap private banks are likely to maintain the growth momentum at ~18% YoY.

Public sector banks are expected to report 16.1% YoY growth in loans. For non-banking financial companies, we expect credit growth at 13.2% YoY (5% QoQ) while profit after tax growth is expected at 8.3% YoY.

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