Banks are expected to continue to see healthy earnings growth in Q4 FY23 led by steady growth in net interest income (NII) and lower provisions. Loan growth is seen sustained on broad-based demand and seasonal factors wherein credit demand tends to be higher in the last quarter of a financial year.
Analysts project earnings growth for the quarter at 17 per cent y-o-y and NII growth at 25 per cent on the back of 16 per cent rise in advances. Earnings growth for FY23 is seen at 46 per cent, with private banks growing at 39 per cent and PSU banks at 56 per cent.
The outlier is expected to be Axis Bank which is seen reporting a loss due to one-time goodwill amortisation following the acquisition of Citibank India’s consumer banking business.
On the other hand, NIM (net interest margin) is seen largely flat sequentially due to interest rate pressures.
“We are probably closer to the peak on NIM for banks as the cost of funds is likely to move faster than lending yields. The asset-quality ratio should see further improvement across the board, leading to lower credit costs,” Kotak Institutional Equities said in a note, adding that there is still strong traction in earnings growth for mid-tier banks.
Banks have been seeing demand from across sectors led by NBFCs, services and personal or unsecured loans. While loan growth has seen some moderation in Q4FY23 as per the latest data available, retail, SME and consumption-led credit demand continues to be strong.
“The corporate segment has also witnessed a gradual recovery, though a pick-up in capex would be key to sustain growth momentum. Home, vehicle, unsecured, and small business segments continue to do well, while demand for CV (commercial vehicle) is also improving. The credit card business is seeing healthy momentum, with robust growth in spends,” Motilal Oswal Securities said.
HDFC Bank was the top pick as strong business momentum, both in terms of loan and deposit growth, and steady growth in fee income and margins is seen positioning the bank well ahead of the merger, reflecting healthy growth trends for the merged entity. The private sector lender will kick start the Q4 earnings season for the sector on April 15.
A major factor to watch out for will be trends in deposit mobilisation by banks, as despite a sharp increase in deposit rates over the past few months, the credit-deposit gap continues to be high, analysts said.
The management’s commentary and guidance on deposit mobilization, extent of NIM compression, loan growth and capacity for operating leverage will be the key points of discussion, they said.