The accumulated credit base amounts to Rs128.6t. Loan growth picked up in Oct’21 and has seen strong one-way growth so far. In FY23YTD, total loans have increased by 8.1%.
While any significant 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 respectively in Credit Cards/Car/Home Loans. Retail loan mix increased to 31.6% of total loans from 29.8% in FY21.
On the other hand, industrial credit growth recovered gradually (+11.4% YoY in Aug’22 v/s +10.5% YoY in Jul’22). In industry, credit to medium industries registered strong growth of 35.6% YoY; while, credit to micro and small industries increased ~28% YoY.
Credit to large industries rose 6.4% YoY and is showing signs of a healthy 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 so far). Outstanding deposit base stands at Rs 172.7t.
In deposits, banks have seen a mixed trend in acquiring retail deposits, resulting in an increase in the CASA ratio by small and medium banks, while large banks witnessed moderation.
In a rising rate cycle, we expect deposits to gain momentum. The gap between credit growth and deposit growth at 8.3% is at a decade high (12 year high) except for the distortion in deposit growth during demonetisation in Nov’16.
While the system can still finance growth by using excess SLR, the focus on deposits will increase significantly over FY24, putting pressure on deposit rates.
We have seen banks increasing their deposit rates and therefore, we remain cautious on margins throughout FY24, while we expect NIM improvement to continue throughout 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 two weeks is at ~129% and it has been running well above 100% over the past year.
The banking system saw a healthy recovery in loan growth led by a revival in the corporate segment, while growth in the retail and SME segments remained robust. Deposit growth is moderate. However, the same is expected to see an increase in the current rising interest rate regime.
Banks with higher CASA ratios and floating rate loans are likely to be better placed in a rising rate environment.
Axis Bank: Buy| Target Rs 975| LTP Rs 909| 7% increase
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, helped by a moderation in slippage and a healthy recovery and upturn.
The rearranged book becomes simple while the higher allocation buffer provides comfort. We expect PAT growth of 63%/16% for FY23E/24E and RoA/RoE of 1.8%/18.1% from FY24E.
IndusInd Bank: Buy| Target Rs 1,450| LTP Rs 1,146| 26% increase
Loan growth saw healthy traction across segments. Deposit appeal continues to remain healthy, with a focus on building a stable and granular liability franchise. Rising interest rates are likely to drive revenue, which along with an increase in loan growth is likely to support margins.
Asset quality ratios improved driven by lower declines in corporate and consumer portfolios. 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)
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