Banks share price target

Despite seasonal headwinds, systemic credit growth has held up very well and in fact YoY growth, as per RBI data, has increased marginally from Mar’23 levels. The withdrawal of Rs2,000 currency notes seems to have eased some pressure on rates (no material rise in card rates for term deposits) though o/s cost of deposits should still rise faster than loan yields QoQ.

Q1FY24E earnings growth momentum on a sequential basis for HFC-NBFC MFIs is likely to be better on the following grounds: i) Continuous benefit of upward repricing in asset portfolio given the lenders have hiked rates between 25-50bps during Mar-Apr’23 and the same is likely to outweigh pressures on funding cost which may help lenders in either maintaining spread sequentially or improving it.

The total value of credit card transactions rose 23.7% YoY to Rs 1,41,025.9 crore, and the number of cards outstanding increased by 18.1% YoY. Private sector banks grew by 32.5% YoY in terms of the value of transactions.

Banks’ sector deployment data for May’23 (as of 19 May’23) suggests overall non- food credit now stands at Rs138.58trn, up 15.6% YoY and 0.2% MoM with growth being driven by services and retail loans, while agri and industry segments saw MoM decline.

The monthly data on lending and deposit rates of scheduled commercial banks (SCBs) (excl. regional rural banks and small finance banks) for May’23 suggests: 1) SCBs’ outstanding weighted average lending rate (WALR) continues to rise (up 2bps MoM).

The Reserve Bank of India’s six-monthly Financial Stability Report (FSR) reiterates our systemic view (link here) that Indian banks’ balance sheet strength is strong and is likely to remain so. The report mentions that both banking and corporate sectors’ balance sheets have been strengthened, engendering a ‘twin balance sheet advantage’ for growth.

Despite the initial scare, the Indian banking system has emerged strongly post the covid pandemic in the form of all-time high CET 1 levels, decadal low gross / net NPAs and strong contingent provisions. FY23 has been a good year for the banking system with credit growth touching multi-year high and NIMs rising to the highest level in a decade.

First-year premium of private insurers rose 39.5% MoM to Rs 9,421.5 crore in May 2023, while LIC's premium increased by 141.9% MoM to Rs 14,056.3 crore.

Overall, private insurers sold around 5.3 lakh policies in May 2023. While LIC sold 11.3 lakh schemes. Its market share dropped 310 bps YoY to 68.2%.

The monthly data on lending and deposit rates of scheduled commercial banks (SCBs) (excl. regional rural banks and small finance banks) for Apr’23 suggests: 1) SCBs’ outstanding weighted average lending rate (WALR) continues to rise (up 4bps MoM). 2) However, WALR on fresh loans has seen MoM decline (down 23bps) in Apr’23, after 11 months of consecutive rise.