Banking industry to remain mute: ICICI Direct

Hyderabad As the credit off-take is estimated to be subdued at 6-7 per cent in July-September (Q2) of this financial year 2021-22E, India's retail broker and financial product distributor ICICI Direct expects the operational performance of the banking industry to remain muted. However, moderation in incremental slippages, led by improvement in collections, is expected to boost earnings.

Among lenders, variation is expected on the operational front with large banks seen posting relatively better performance compared to mid and smaller peers. Pankaj Pandey, Head – Research at ICICI Direct, expects the lenders to guide improvement in asset quality and pick-up in credit off-take ahead.

Non-Banking Financial Companies (NBFCs) are expected to post a pick-up in disbursement (as indicated in monthly updates) though improvement in asset quality is estimated to be visible post Q3 FY22E onwards. Premium accretion in insurance industry is expected to stay healthy with claim experience to remain key monitorable.

With lockdowns due to second Covid-19 wave taking a back seat, credit growth is expected to pick up, especially in retail, agri and MSME segments while a positive reflection of easing of restrictions will also be seen on the asset quality front. Pent up demand in retail, upcoming festive season, extension of ECLGS and normal monsoons should aid credit growth ahead.

Retail oriented banks like HDFC Bank, Axis should see meaningful reduction in stress accrued in last quarter and management commentary also directionally indicate the same. For the NBFCs, largely into micro finance, gold and other small loans, around 35-40 per cent of collections in such loans comes from field staff.

Since, now restrictions have been eased we expect to see recoveries in these segments. For banks and NBFCs, credit growth is expected to be marginally above industry at 7.8 per cent to 49.5 lakh crore, driven by retail (home, auto and credit card) and MSME segment. Latest RBI data indicated a growth of 6.7 per cent for the overall banking sector.

Micro, Small and Medium Enterprises (MSME) segment should see steady credit off-take on account of extension of ECLGS scheme. Private banks, with healthy capitalisation, may grow at 10 per cent, gaining market share from Public Sector Banks (PSBs). Sequentially, growth is expected to pick up at around 3-4 per cent as easing restrictions to aid business activity.

On the deposit front, traction is expected to remain healthy at 11 per cent mark, with gradual improvement in current account savings account (CASA). On the asset quality front, as lead indicators have suggested collection efficiencies have improved from July 2021 onwards and for most banks it should have reached 95 per cent levels.

However, the research analysts of ICICI Direct believe broad gross non-performing asset (GNPA) numbers will remain steady sequentially with improvement to be seen from Q3FY22E onwards. Large private banks are expected to witness reduction in GNPA, while mid-sized banks with focus on MSME segment are expected to report variations in their asset quality experience.