4 Preferred Banking Stocks To Buy As Suggested By Motilal Oswal

Motilal Oswal has come-up with its latest report on the financial sector, including banks. According to the brokerage firm, the Banking sector reported a strong 2QFY23, led by healthy loan growth, NIM expansion, and controlled provisions. Deposit growth, however, was modest, with CASA deposits remaining under pressure. Here are some stocks where the brokerage has a buy call or a preferred pick call.

NII Growth healthy

According to the brokerage NII growth was healthy (13-44% YoY range), aided by margin expansion of up to 36bp QoQ across Banks, barring Bandhan Bank. However, a muted treasury performance and higher OPEX kept PPOP growth modest. Core PPOP, though, grew 17-44% YoY (barring Ratnakar Bank, which saw a decline of 22%).

"We expect earnings to remain resilient over 2HFY23, guided by a robust traction in loan growth and an improving margin. Banks with a high CASA mix and floating loans are well-positioned to navigate the rising rate environment," the brokerage has said.

Preferred stock picks ICICI Bank, SBI, IndusInd Bank and Federal Bank

Motilal Oswal's expects earnings to remain resilient, led by robust loan growth traction and an improving margin trajectory. "Banks with a higher CASA mix and floating loans are well-positioned to navigate the rising rate environment, even as competitive intensity to garner deposits and funding cost is likely to increase. The asset quality outlook remains encouraging, with a moderation in slippages, healthy PCR, and contingent buffers driving benign trends in core credit cost. We estimate ~31% PAT CAGR for our Coverage Universe over FY22-24 and project a RoA/RoE of 1.3%/15.4% by FY24. Our preferred picks are ICICI Bank, State Bank of India and IndusInd Bank," the brokerage has said.

PSBs: Healthy loan and margin aid NII growth

According to Motilal Oswal Public Sector Bank reported an improvement in operating performance, led by a robust pickup in loan growth (3-8% QoQ) and a recovery in the Corporate segment. Deposits saw a modest growth, with a QoQ decline in CASA.

"NII and fee income saw a healthy growth, with margin expanding up to 31bp, while treasury performance was muted. Slippages fell QoQ and was higher in the SME and MSME segments. This, coupled with healthy recoveries and upgrades, led to a 39-177bp QoQ improvement in the gross non performing ratio," the brokerage has said.

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