Brokerage firm Motilal Oswal Financial Services predicts that the Indian banking sector will experience robust systemic loan growth of 14% year-on-year (YoY) in FY24, driven by strong performance in the Retail and SME segments. The firm estimates that the banking coverage universe (excluding HDFC Bank) will report earnings growth of approximately 22% YoY in Q2FY24.
Motilal Oswal identifies ICICI Bank, IndusInd Bank, Bank of Baroda, and SBI Life Insurance Company as its top picks in the Banking, Financial Services, and Insurance (BFSI) space.
ICICI Bank, in particular, stands out due to its consistent growth and profitability over the past few years. The bank has also increased its provision coverage ratio (PCR) to around 83%, the highest in the industry as of Q1FY24. Furthermore, ICICI Bank is becoming a leader in the SME and Retail segments through investments in technology and partnerships with new ecosystem players. Motilal Oswal expects the bank to achieve an 18% loan compound annual growth rate (CAGR) between FY23-25. The brokerage firm has assigned a ‘Buy’ rating to ICICI Bank with a target price of ₹1,150 per share, indicating a potential upside of over 22% from the closing price on Thursday.
IndusInd Bank has also demonstrated a healthy performance in Q1FY24, with a 30% YoY increase in earnings driven by robust net interest income (NII) growth and lower provisions. The bank maintains its market share of approximately 2% of net systemic advances, primarily driven by its strength in the vehicle finance and MFI segments. Motilal Oswal projects a loan growth of 18-23% under PC-6, and the moderation in credit cost is expected to support expansion in return on assets (ROA). The brokerage firm recommends buying IndusInd Bank shares with a target price of ₹1,650 per share, implying an upside of around 18%.
Bank of Baroda has witnessed a significant improvement in asset quality due to enhanced underwriting and improved collection efficiency. Motilal Oswal expects the bank’s retail loan growth to outperform total loan growth and gain market share in the overall loan mix. Although margins may moderate due to rising deposit costs, a healthy current and savings account (CASA) mix of 40-42% will limit the decline in net interest income (NII). The brokerage firm recommends buying Bank of Baroda shares with a target price of ₹240 per share.
In conclusion, Motilal Oswal Financial Services anticipates strong loan growth in the Indian banking sector, with ICICI Bank, IndusInd Bank, and Bank of Baroda identified as top investment opportunities. These projections are based on factors such as the banks’ performance, market positions, and growth strategies.
– Systemic loan growth: The overall growth rate of loans in the banking system, representing the growth of credit provided by commercial banks.
– Retail segment: Refers to banking services and products targeting individual consumers rather than businesses or corporations.
– SME segment: Stands for Small and Medium-sized Enterprises, referring to businesses with a limited number of employees and relatively low annual revenue.
– Earnings growth: The increase in a company’s profits over a specific period.
– Provision coverage ratio (PCR): A financial indicator that measures the amount of credit risk covered by a bank’s provisions.
– Loan CAGR: Compound Annual Growth Rate of loans, representing the average annual growth rate of loans over a specific period.
– Return on Assets (ROA): A financial ratio that shows how efficient a company is at using its assets to generate profits.
– Return on Equity (ROE): A financial indicator that measures a company’s profitability in relation to shareholders’ equity.
– Valuation: The process of assessing the economic worth of an asset or company.
– Motilal Oswal Financial Services