Banks’ earnings growth likely to stay intact in Q4, says Motilal Oswal

Brokerage house Motilal Oswal Securities expects systemic loan growth to remain robust in Q4FY23, with a healthy credit growth of 15.7% YoY in the March quarter, driven by continued traction in the retail and SME segments.

“We expect systemic loan growth to remain robust in 4QFY23, with a healthy credit growth of 15.7% YoY in Mar’23, driven by continued traction in the Retail and SME segments. 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 is also improving. The credit card business is seeing healthy momentum, with robust growth in spends,” said Motilala Oswal.

The brokerage expects banks under its coverage to report a strong 44% YoY growth in net profit in the last quarter of FY23, led by a 30% growth in pre-provision operating profit.

While the brokerage added that it expects aggregate earnings growth of private at 39% and PSUs to report earnings growth of 56% YoY.

“We expect private/PSU banks to report earnings growth of 39%/56% YoY. We estimate earnings growth of 46%/24%/19% YoY over FY23/FY24/FY25,” said the brokerage in its report.

For private bank, the brokerage noted that pre-provision operating profit growth of 26% YoY (4.5% QoQ) and PAT growth of 23% YoY (5.6% QoQ) in 4QFY23. It estimates 18% loan growth for private banks in FY23and FY24. While, it expects NII growth of 30% YoY in 4QFY23, with Axis Bank at 41%, ICICI Bank at 39%, Kotak Mahindra Bank at 33%, an HDFC bank at 27%,.

“Earnings should remain healthy, aided by healthy business growth, healthy margins, and benign credit costs. However, opex could remain high due to continuous investments in business. We estimate 18% loan growth for private banks in FY23/FY24 each,” said the report.

Having a stable-to-positive bias on margins, Motilal Oswal said it would remain watchful of a rise in the deposit cost, as that could keep margins under pressure over FY24.

While for Public Sector Banks, the brokerage noted they are likely to deliver NII, pre-provision operating profit growth growth of 31% and 33% YoY respectively (5.7% QoQ each), while PAT growth of 84% YoY (10.9% QoQ) in 4QFY23E.

For Motilal Oswal Securities, Axis Bank, ICICI Bank, SBI, and Federal Bank are the top buys in the banking pack.