Dramatic shift in lenders’ stance on loan portfolio growth: Kotak Securities

The normalization of asset quality and the return of credit growth have brought some regional bank, public sector and mid-tier bank stocks back onto investors’ radar, according to Kotak Securities Ltd (KSL).

“Payments activity remained strong in August. Loan growth improved to 15% year-on-year (YoY), driven by retail and MSMEs. Lending rates and depository continued their upward march in this rising rate environment,” KSL analysts MB Mahesh, Nischint Chawathe, Ashlesh Sonje, Abhijeet Sakhare and Varun Palacharla said in a report.

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Analysts observed that they are clearly seeing a dramatic shift in lenders’ stance on loan book growth, as asset quality has normalized and banks face no capital challenges.

“Credit demand also appears to be picking up, but we are awaiting more convincing signs,” they said.

Healthy credit growth

Most banks reported healthy credit growth resulting from the recent broad recovery, with mid-tier and non-frontline banks further benefiting from consistent performance on asset quality, according to the report.

“While bank managements have reported seeing no macroeconomic deterioration on the ground, this continues to be an overhang for investors,” the analysts said.

Analysts have pointed out that the Reserve Bank of India’s daily payments data for August 2022 indicate that strong payment trends are continuing.

“We’re in a seasonally weak period from a retail spending perspective, but the year-over-year growth trends are still quite solid, especially when looking at credit card data.

UPI Transactions also continue to show strong trends largely at the expense of debit cards, which have seen slow growth,” according to the report.

Analysts noted that bank credit growth accelerated a further 15%, mainly driven by the retail (up 19% year-on-year) and MSME segments.

Housing (up 17% YoY) and credit cards (up 28% YoY) are leading the recovery in loan growth in the retail segment.

Positive stock price momentum

Analysts said August was another month of positive stock price momentum for the banking, financial services and insurance (BFSI) sector (the Nifty Bank Index was up about 6% month on month). the other (MoM) in August 2022 after rallying around 13 percent in July), they said.

They observed that among frontline private bank stocks, ICICI Bank rose around 8% during the month, while HDFC Bank and Axis Bank increased by about 4%.

National Bank of India the stock was broadly stable. Karur Vysia Bank, Bank of Baroda and National Bank of Punjab were among the best performing stocks under our coverage (up about 13-17% m/m),” according to analysts.

Over a 12-month horizon, public sector banks and regional private banks have significantly outperformed Bank Nifty, they said.

Published on

September 02, 2022

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