icici bank: Banking sector to deliver over 40% PAT growth in Q4; ICICI Bank, Chola Investment top buys

We expect systemic loan growth for the banking sector to remain robust in 4QFY23, with a healthy credit growth of 15.7% YoY in Mar’23, driven by continued traction in the Retail and SME segments.

The Corporate segment has also witnessed a gradual recovery, though a pick-up in capex would be key to sustained growth momentum.

Home, Vehicle, Unsecured, and Small Business segments continue to do well, while demand for CV is also improving. The credit card business is seeing a healthy momentum, with robust growth in spending.

We estimate systemic loan growth of 15.7/13.3% in FY23/24, while being watchful for any change in the demand environment, given 1) the challenging macro situation, 2) elevated inflation, and 3) a high base effect.

On the other hand, deposit rates have increased sharply over the past few months, with liability accretion gaining importance.

However, the gap v/s credit growth still remains high. While we expect a stable-positive bias in margins in 4QFY23, the rise in the cost of deposits and further rate hikes would influence the margin trajectory in FY24.Margins are likely to see some pressure in FY24, in our view.

We estimate slippages to remain under control, which, along with recoveries, should improve the asset quality. The restructured and ECLGS books have been resilient, which along with a low SMA book will keep credit costs under control in FY23. Though, we expect a slight uptick in credit costs in FY24.

Overall, we estimate banking space to deliver ~44% YoY growth in PAT in 4QFY23 and sustain PPoP growth at ~30% YoY.

In FY23, we expect private/PSU banks to report earnings growth of ~39%/~56% YoY. Overall, we estimate earnings growth of ~46%/24%/19% YoY over FY23/FY24/FY25.

For NBFCs too, demand remains robust with lending Financials expected to deliver 18%/16% /15% YoY growth in NII/PPoP/PAT in 4QFY23. 4Q being a seasonally strong quarter, we expect asset quality improvement across the board.

Lower bounce rates and higher collections are likely to translate into an improvement in GS3 and a sequential decline in credit costs.

Within the segment, we expect disbursements in vehicle financing to have remained healthy in 4QFY23, driven by strong underlying demand and sectoral tailwinds.

Among housing financiers, we expect some demand moderation in higher ticket sizes, while affordable housing financiers continue to exhibit strong disbursement momentum.

We expect a ~15% YoY loan growth in 4QFY23 for the housing finance universe. On the other hand, Gold loan demand has improved in the lower ticket size (

ICICI Bank: Target Rs 1150
ICICI Bank has substantially increased its PCR to ~83% as of 3QFY23 – the highest in the industry. It is well-cushioned with higher provisions on its balance sheet and expects normalization in credit costs from FY23.

The steady mix of a high-yielding book such as Retail/Business banking, the deployment of excess liquidity, and a low-cost liability franchise should aid margin expansion.

We expect margins to remain healthy, as growth in the SME and high-yielding Retail segments picks up. We expect an 18% loan CAGR over FY23-25 for the bank. We estimate RoA/RoE of 2.2%/17.3% for FY25.

Cholamandalam Investment & Finance: Target Rs 920
Chola has exhibited its capabilities to scale up the new businesses, with their contributions to the disbursement mix inching up to ~22% in 3QFY23.

While the new businesses will drive higher opex and credit costs, higher yields should lead to RoTA accretion.

CIFC is a franchise equipped to deliver strong AUM growth with benign credit costs (relative to peers), translating into a sustainable RoE of ~20% across economic cycles.

We estimate Business AUM to grow at 34% YoY for Q4FY23. Asset quality to improve with GS3 decline of ~40bp sequentially.

(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)