“The Q1FY23 operating performance of banks under our
coverage demonstrated an upbeat stance
on advance growth and credit cost outlook. Nonetheless, reported earnings
missed our expectations due to MTM
hit and elevated Opex. NIMs just stayed put (as against expectations of improvement) as upward repricing of EBLR/MCLR
loans will likely take 3-6 months reset period to fully reflect
in yields” said ICICI Securities.
Following the same, it can be said that several
significant banks in the sector have seen around
16% YoY & 2% QoQ growth in NII. Their core operating profit grew 17% YoY,
while treasury loss dragged operating
profit lower by 13% YoY and 18% QoQ. Whereas subsiding credit cost and lower base supported 35% YoY earnings growth.
Yet, earnings of SBI, HDFC Bank and
Kotak lagged investors expectations, they still came out to be robust, keeping
in the mind global recessionary fears
& falling of rupee value. As the situation still seems to be improving, Bank Nifty has also broken one
of their past resistances and made a robust up
move post Q1FY23. It is also noteworthy that the otherwise
underperforming PSU banks fared
better their private sector counterparts in the past few months which have
helped the Banknifty scale towards new highs.
IndusInd Bank & ICICI Bank are the leaders in YTD
returns among the private banks. IndusInd
Bank and ICICI Bank, both gave robust above 20% return YTD. While SBI also gave almost 20% returns, Kotak Mahindra and HDFC Bank seems to be losing their steam.
Now, as NIFTY50 is trading near 18,000 levels and analysts
are expecting it to make a new high,
by crossing the resistance with high volumes, let’s check how the sentiment
plays for the banking sector. We will now analyse quarterly
performance of these five banks mentioned
in the graph above, to understand the performance of the Banking
sector in Q1FY23 and prospects going forward.
Banking Sector results
Q1FY23: Everyone saw NII going
up YoY basis
Performance of IndusInd Bank in Q1FY23 reaffirmed broker’s
confidence of it being able to deliver
>5% PPoP/loans (Pre provision operating profits), 1.7%/1.9% RoAs and 15%/16% RoEs by FY23E/FY24E, respectively. Their
NII was up 15.8% YoY, 3.5% QoQ to Rs 4,125 crore
on the back driven by robust growth in business. Sequentially margins remained
flat at 4.21% (up 15 bps YoY). Other
income was up 8.3% YoY to Rs 1929 crore, driven by healthy growth
of 47% and 9% YoY & QoQ respectively, in core fee income at Rs 1932 crore.
HDFC’s NII was up 14.5% YoY and 3.2% QoQ to Rs 19,481
crore aided by healthy loan growth of
21.6% YoY and stable NIMs at 4.0% on a sequential basis. Other income declined 16.4% QoQ and showed modest 1.6% growth
on yearly basis mainly on account of treasury
loss of Rs 1,312 crore vs. a gain of Rs 601 YoY. Fee income reported
strong growth of 38% YoY.
ICICI Bank as it is well-placed to optimally invest in
building new growth runways, however, incrementally
enhancing medium term return ratios appears a steep ask. ICICI’s NII growth (+21% YoY), led by stable NIMs (4%). Loan
growth was balanced across portfolios as the
quarter witnessed improved utilisations and Capex activity in underlying
wholesale lending (+17% YoY), while
retail was led by mortgage (+22%), business banking (+45%) and credit cards (+63%).
SBI’s operational performance was below estimates with NII
growth at 12.9% YoY and flat QoQ to
Rs 31,196 crores, due to lower NIMs (13 bps decline QoQ). Other income was impacted significantly due to MTM loss and
came in at Rs 2312 crore, 5x lower compared with Q1FY22
and Q4FY22. `
Kotak Mahindra’s posted a healthy growth in NII at 19.2%
YoY and 3.9% QoQ to Rs 4697 crore.
Healthy NII growth was aided by 14 bps sequential expansion in NIMs to 4.92%
and robust growth in advances. Other
income was down 8% YoY and 31.9% QoQ to Rs 1243 crore, mainly due to lower trading income. Fee income grew 41.7%
YoY but declined 2.4% on QoQ basis.
Key banking ratios:
GNPAs & NNPAs have
improved, supported by robust CASA growth
IndusInd Bank’s GNPA and NNPA inched up slightly by 8 bps
and 3 bps QoQ to 2.35% and 0.67%,
respectively. Restructured book declined 50 bps QoQ to 2.1%. Their loans
increased by 17.7% YoY and 3.7% QoQ
to Rs 2.47 lakh crore. Deposit growth was healthy at 13.1% YoY and 3.1% QoQ to Rs 3.02 lakh crore,
driven by 16% YoY uptick
in CASA.
HDFC Bank posted a mixed set of numbers as business growth
continued its healthy traction, but
asset quality performance was modest. GNPA and NNPA ratio increased from 1.17% and 0.32% to 1.28% and 0.35%,
respectively, on a sequential basis. Retail book saw stable asset quality, but CRB and corporate loans witnessed 20
bps and 11 bps QoQ rise in GNPA levels,
respectively.
ICICI’s GNPA/NNPA ratio contracted by 19bp/6bp QoQ to
3.41%/0.7%. PCR ratio was broadly
stable 80%. On the liability front, deposits grew 13% YoY, but fell 2% QoQ.
CASA deposits grew 16% YoY but fell
5% QoQ. Average CASA mix improved by 60bp QoQ to 45.8%. Fresh slippages
rose to Rs 5880 crores (2.7% annualized). However, higher recoveries restricted the increase
in net slippages to Rs 3,800 crores.
SBI’s Asset quality was largely steady as GNPA ratio fell
6 bps QoQ to 3.9% while net NPA was
down 2 bps QoQ to 1%. Fresh slippages increased to Rs 9,740 crore from Rs 2,845 crore in Q4FY22. Thus, slippage ratio was
at 1.38%. Watch-list (SMA1 and SMA2) is now at
Rs 6,983 crore vs. Rs 3,544 crore QoQ, respectively. The bank reported
overall gross credit growth at 14.9%
YoY to Rs 29 lakh crore, led by 18.6% YoY growth in retail segment. Deposit growth came in at 8.73% YoY to Rs
40.5 lakh crore where CASA deposits grew 6.5% YoY. Thus, CASA ratio declined
slightly from 45.9%
to 45.3% QoQ.
Kotak Mahindra Bank’s
asset quality performance improved as GNPA and NNPA declined 10 bps and 2 bps sequentially to 2.24%
and 0.62%, respectively. Net slippage for the quarter was at Rs 654 crore vs. Rs 736 crore QoQ. The bank had total
provisions of Rs 6,532 crore at the
end of Q1FY23 vs 6,710 crores in Q4FY22. Overall loan growth for the quarter
was healthy at 28.8% YoY and 3.3% QoQ
to Rs 2.8 lakh crore. Deposits were up 10.4% YoY to Rs 3.16 lakh crore, where in CASA deposits grew 7% YoY. CASA
ratio declined from 60.7% in Q4FY22
to 58.1% in Q1FY23 (60.2%
in Q1FY22).
Other key Updates:
HDFC bank and HDFC ltd has already announced a mega
merger, which is expected to be completed in the next 14-16 months.
Another news in the similar lines is the merger talks
about Kotak Mahindra bank and Federal Bank
looming in the market. While the Federal Bank MD & CEO denied the claim in
an interview with media and said
that they may probably acquire some other entity. Few investors are considering this as a speculative move
and betting on the same. So, it would be interesting to see what happens in the ever-growing future.
Our View:
Banks have already seen several ups and downs from the
beginning of 2022 with RBI hiking benchmark
rates repeatedly in 2022 with a move to control the inflation. Several banks have also seen improvement in margins in
Q1FY23, while others are still struggling. As the future prospects appear to be in favour of banks with growing CASA and other indicators, recessionary fears are still a hurdle.
Therefore, long term investors can consider investing in
banks having robust fundamentals including
the private banks as well as the PSU banks going forward. A long-term investing bet appears to be reasonable as NIFTY is
already testing its resistance to make a new high and economy recovering from covid havoc appears to be few factors favouring
their growth.
About the Author
Ketan Sonalkar (SEBI Rgn No INA000011255)
Ketan Sonalkar is a certified SEBI registered investment
advisor and head of research at Univest. He
is one of the finest financial trainers, with a track record of having trained
more than 2000 people in offline and online models. He serves as a consultant
advisor to leading fintech and financial data firms. He has over 15 years of
working experience in the finance field. He runs Advisory Services for Direct
Equities and Personal Finance Transformation.
