As per a research report released by Emkay Global Financial Services the asset quality pain for most banks is largely behind and the focus now is on the growth acceleration. The one-off gains helped public sector banks to maintain a strong profitability; whereas the private banks' performance was a shade better than Q1. The consumer retail credit growth is picking up; it is awaiting an acceleration in commercial retail and corporate growth. The stress formation will ease in H2 and so do provisions, all eyes are now on growth acceleration.
One-off gains help PSBs maintain strong profitability; private banks' performance shade better than Q1:
Despite some softness in margins and partial impact of the change in pension rules, PSBs reported strong profitability on the back of a one-off recovery from DHFL and contained provisioning due to lower fresh NPA formation. That said, Emkay Global believes growth still remains weak and PSBs need corporate growth acceleration. Among PSBs, SBI, Canara and Indian were clear outliers. BOB also reported a strong bump-up in profits, barring a slight upset on growth. Among private banks (PVBs), large PVBs continued to report divergent and relatively stronger performance. ICICI Bank was a clear outlier, followed by HDFC Bank, which reported better growth/asset quality vs. Q1. Axis Bank continued to disappoint on growth/margins. IndusInd Bank reported reasonable numbers despite accelerated provisions on Vodafone, but recent corporate growth related issues hurt the stock. Among small/mid-size banks, Federal Bank was a clear outlier, while Karur Vysya Bank/City Union Bank reported better-than-expected performance on profitability/asset quality. Bandhan Bank was a major disappointment as the bank upfronted provisions on its stressed MFI portfolio, thereby slipping into a massive loss.
Consumer retail credit growth picking up; await acceleration in commercial retail and corporate growth:
Within consumer retail, mortgages remained the key growth driver, with signs of growth normalization seen in card/personal loan as banks shed risk-aversion to some extent. Car finance growth was sluggish due to underlying weak volumes (impact of chip shortage), while micro finance institutions/Two Wheelers continued to struggle with asset quality issues. Within commercial retail, Commercial Vehicles remained the laggard, and higher fuel prices could delay a full-scale growth pick-up. Business Banking/SBL segments should see acceleration as asset quality risks recede. Corporate growth remained sluggish due to underutilization of capacities and deleveraging, forcing few Public Sector Banks to cut growth guidance by 100-200bps. Though, the sanction pipeline is building up from sectors such as textiles, petrochemical, chemical and steel. Emkay Global has trimmed its systemic credit growth estimates to ~8% from 9% for FY22, factoring in the impact of continued sluggishness in corporate credit on PSBs and a few large banks.