Loan growth sees momentum
According to Sharekhan, the recent RBI data on credit growth shows that the number has improved to 7% y-o-y (as on December 17, 2021), which is positive for the sector especially for large banks. However, data on deployment indicates that credit to corporates is yet to pick up, which was flat on y-o-y basis.
“While credit growth to MSMEs was primarily supported by the ECLGS scheme. We would keenly watch out for the management commentary on near-term growth outlook for banks in our coverage. The retail credit is likely to see strong growth during the quarter while self-employed segment may take some time to recover. In the microfinance segment, the focus would be on the asset quality and collections efficiency with growth taking a back seat for this segment. Deposit growth is likely to be 8 to 10% with most of the banks like HDFC Bank, Federal Bank and Yes Bank reporting robust deposits,” the brokerage has said.
Asset quality set to improve
For Q3FY22, Sharekhan expects the asset quality to improve for most of the banks aided by lower slippages and better collection efficiency.
“With the economic recovery being uneven across the sectors, the retail and SME segments may see some improvement in delinquencies while for corporate there would be no large slippages. We expect positive management commentary on the asset quality trend going ahead. Further, the restructured book is likely to be sustained at the current levels, the behavior of which would drive banks’ future credit cost trajectory. Overall, credit cost is expected to moderate during the quarter,” the brokerage has said.
5 Banking stocks to buy according to Sharekhan
Stock prices of banks have corrected from the highs on the concerns of growth, economic recovery and management of asset quality.
“We believe that with the gradual pick-up in the systemic credit and economic recovery although uneven would bring back the interest of market participants for the sector with larger players getting more focus. Banks with better underwriting practices and loan mix stand to gain going ahead. We expect banks to renew their focus on the credit growth in order to sustain the profitability going ahead. The asset quality is likely to improve going ahead,” the brokerage has said.
According to the brokerage the top buys from the banking sector include stock name like State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. As on date of the article, the author and his family do not own any stocks that are recommended in the above article.
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