The outstanding credit base stood at Rs128.6t. Loan growth picked up in Oct’21 and has witnessed one-way robust growth so far. In FY23YTD, total loans have grown 8.1%.
While any material change in the demand environment needs to be monitored, given the challenging macro environment, we expect systemic credit to grow ~13%/14% YoY in FY23/FY24, respectively.
Retail loan growth continued to remain strong (up 19.5% YoY), led by ~27%/ ~20%/~16% YoY growth in Credit Cards/Auto/Home loans, respectively. The mix of retail loans increased to 31.6% of total loans from 29.8% in FY21.
On the other hand, industry credit growth is recovering gradually (+11.4% YoY in Aug’22 v/s +10.5% YoY in Jul’22). Within the industry, credit to medium industries posted robust growth of 35.6% YoY; while, credit to micro and small industries accelerated ~28% YoY.
Credit to large industries grew 6.4% YoY and is witnessing healthy signs of recovery. Credit growth in the services sector stood at 17.2% YoY in Aug’22, led by healthy growth in NBFCs (+27.8% YoY).
Deposit growth remained modest at 9.6% YoY for the fortnight (up 4.9% in FY23 to date). The outstanding deposit base stood at Rs 172.7t.
Within deposits, the banks have seen mixed trends in garnering retail deposits, resulting in an uptick in CASA ratio by small- and mid-sized banks, while large banks saw moderation.
In the ongoing rising rate cycle, we anticipate deposits to gain momentum. The gap between credit growth and deposit growth at 8.3% is at a decadal high (12-year high) except for the distortion in deposit growth during demonetisation in Nov’16.
While the system can still fund the growth by using excess SLR, the focus on deposits will significantly increase over FY24, thus putting pressure on deposit rates.
We have already seen banks increasing their deposit rates and thus, we remain watchful of margins over FY24, while we expect NIM improvements to continue over 2HFY23.
The Credit-to-Deposit (CD) ratio for the system improved to 74.5% from a low of 69.6% in Nov’21. The incremental CD ratio for the fortnight stood at ~129% and it has been running well above 100% over the past one year.
The banking system is witnessing a healthy recovery in loan growth led by a revival in the corporate segment, while growth in the retail and SME segments remains robust. Deposit growth has been modest. However, the same is expected to see some uptick in the current rising interest rate regime.
Banks with a higher CASA ratio and floating rate loans are likely to be better placed in a rising rate environment.
Axis Bank: Buy| Target Rs 975| LTP Rs 909| Upside 7%
The retail business has strengthened, with the share of retail loans improving to ~58% of total loans, led by home loans. Asset quality continues to improve, aided by moderation in slippages and healthy recoveries and upgrades.
Restructured book moderated further while higher provisioning buffers provide comfort. We expect PAT growth of 63%/16% for FY23E/24E and RoA/RoE of 1.8%/18.1% of FY24E.
IndusInd Bank: Buy| Target Rs 1,450| LTP Rs 1,146| Upside 26%
Loan growth is witnessing healthy traction across segments. Deposit traction continues to remain healthy, with a focus on building a stable and granular liability franchise. Rising interest rate is likely to drive yields, which along with pick up in loan growth will likely support margin.
Asset quality ratios improved driven by lower slippages in corporate as well as consumer portfolios. The management is guiding for continued momentum in loan growth and is looking to end FY23 with 20% growth.
We estimate PAT to report 40% CAGR over FY22-24, leading to 16% RoE in FY24E
(The author is Head – Retail Research, Limited)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)