Despite price corrections, analysts see the Indian banking sector as a positive spot for the year 2022. When it comes to bank stocks, large banks may be a solid choice as the economy is in a phase of recovering. As a result of the banking sector's potential to grow, brokerage company IIFL Securities has advised investors to buy the shares of Axis Bank and ICICI Bank. The brokerage has set a target price of Rs. 970 for Axis Bank, which represents a 42 percent growth from the current market price of Rs. 679.85 (31 December 2021, 3:30 pm IST). ICICI Bank, on the other hand, has a target price of Rs. 949 and forecasts a 28 percent rise from the current market price of Rs. 740.
According to the brokerage, the bank's "Corporate loan Disbursements were up 24% QoQ, flat YoY. Mid-corporate segment grew 32% YoY / 10% QoQ. The QoQ decline in corporate loans was attributed to deleveraging by corporates, certain prepayments and corporates accessing sources of funds other than bank loans. Capex cycle has bottomed out and a pickup could be postponed by 6-12 months. Festive demand had been strong, so working capital utilisation (which has so far been weal) should improve going forward. Retail disbursements grew 54% YoY and 54% QoQ."
IIFL Securities has said in its latest report that the bank's "Home loan disbursements were up 86% YoY and 54% QoQ. SBB disbursements were up 103% YoY / 72% QoQ. AXSB has become more comfortable in growing its unsecured retail book off-late. Disbursements in the Personal loan segment were up 72% YoY and 21% QoQ. Credit card spends were up 54% YoY and 34% QoQ, and are trending above pre-COVID levels. The bank intends to grow unsecured retail loans faster over the next few years."
The brokerage claims that "Management hopes to achieve a structural improvement in NIM going forward, owing to i) improvement in mix of loans versus investments on the assets side, ii) higher share of low-cost deposits and iii) reduction in RIDF bonds (which have negative spread) as incremental allocations have stopped as the bank is PSL compliant. The bank had an excess SLR of ~856bn. Axis Bank's restructured book stood at Rs44.6bn or 0.72% of loans. AXSB has a PCR of ~24% on the restructured book, including 100% PCR for unsecured retail loans. Restructuring is unlikely to exceed current levels (in terms of % of loans) going forward. Of the total loans restructured, ~93% are secured. LTV in the restructured retail book stood at ~40-70%. Restructuring by segment: i) corporate at 0.68%, ii) retail at 0.80%; SME at 0.02%. Non-fund-based exposure linked to this book is Rs10.02bn."
Buy Axis Bank Suggests IIFL Securities
IIFL Securities has noted in its research report that "Strong liability franchise with a highly granular share of retail deposits (~83%) is the key strength of the bank. The bank is effectively capitalizing its vast customer base of ~27mn to increase granular retail and SME loans and grow fee income. We expect AXSB's operating expenses to remain elevated in the near term, like other large private banks, to invest in tech and franchise to capture emerging growth opportunities. Asset quality is stabilizing and lower credit cost should provide support to earnings."
The brokerage has further highlighted that "Bank is sitting with strong CET1 of ~15.8% which should provide dilution free growth in ensuing years. Asset quality surprised positively with a sharp fall in net slippages (Rs7.1bn) and limited restructuring (0.72%). Operating expenses increased sharply (13.4% miss) led by strong 24% QoQ growth in other operating expenses. Bank continues to maintain COVID provisions on the balance sheet and with improving, economic outlook credit cost can surprise positively. Thus, we recommend a BUY to the stock with a long-term target of Rs. 970."
IIFL Securities has stated in its research report that "Digital sourcing has seen significant growth in the last two years. Digital contribution in savings a/c, FD value, loan approvals & disbursements, and cards sourced stood at 28/25/23/45%, respectively, as of Oct-2021; these products have seen 1.5-2.3x growth YoY. Various initiatives on payment platforms have led to +1% market share in volumes across UPI/NEFT/RTGS, to 16/9/12%, respectively. For products like FASTag, the Bank is striving to increase use cases, like fuel payments, parking payments, etc."
According to the brokerage "Strategic priorities are: a) omnichannel customer experience via products and processes; b) capturing the customer ecosystem opportunity; and c) efficiency and scalability. The bank has clear focus on the entire ecosystem of the corporate, aimed at improving risk calibrated core-operating profits via products (payments, loans, liabilities, investments), value chain (employees, dealers/distributors, vendors, investors, etc.) and opex minimisation (digital, direct sourcing, etc). The Bank is also working with Fintech partners like Saverisk, ePayLater, Porfios and Refyne, to provide bespoke ecosystem solutions. A focussed corporate ecosystem approach has led to 2.3x/1.3x growth in liability/operating profit and assets, over FY19."
"Digitalisation and improving compliance are leading to a strong opportunity in increasing penetration in the SME business. With the account aggregator system, this process is likely to accelerate. Bank provides a comprehensive platform for small businesses, via: a) InstaBIZ app (likely to move to open architecture soon); b) modular platforms, with specific solutions; and c) providing BaaS, with the tie-ups with Fintechs. InstaBIZ has +1mn active customers with +20% penetration in cross-sell products," added IIFL Securities.
Buy ICICI Bank Says IIFL Securities
The brokerage has claimed that "ICICI Bank's analyst meet focussed on giving an in-depth idea about a) customer journey, from acquisition via various channels to deepening relationships, to customised solutions and tech platforms leading to better risk management; b) partnership with fintechs to expand the pie and provide solutions to customer needs; c) single-point focus being on risk calibrated core operating profit across divisions. On wholesale and SME banking, the Bank is seeing growth opportunities emerging, with expected CAPEX revival and formalization /increasing compliance in the economy. The analyst meet builds our confidence on ICICIBC, to compete with fintech players with best-in-class tech platforms. Its journey of capturing profitable market share in focussed areas continues to gain momentum. Reiterate BUY, with Sep-2023 SOTP of Rs 949/share."
The above stocks have been picked from the brokerage report of IIFL Securities. 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.