Banks in a sweet spot to deliver healthy operating performance: IIFL Securities

  • India Infoline News Service
  • 23 Sep , 2022
  • 11:14 AM
Loan growth to pick-up, deposits to follow

Loans CAGR (FY18-22) for large banks stood at 12.5%; this is poised to increase to an ~18% CAGR over FY22-25, driven by continued strength in growth for the retail and services segments, along with pick-up in growth for the industry segment that has been muted over the last few years (10.5% YoY growth as of July 2022). Analysts at IIFL Securities expect Axis Bank/HDFC Bank/ICICI Bank to grow in a similar band of 18-20% CAGR over FY22-25, while Kotak Mahindra Bank should grow faster (24% CAGR) off a lower base and with a lower share of unsecured loans to begin with. Loan growth for State Bank of India would also pick-up to ~16% CAGR going forward. Analysts at IIFL Securities expect deposit growth to ramp up as well to a 16% CAGR over FY22-25 (13.5% over FY18-22) with lower system liquidity and CD ratios inching higher.

Margins to remain relatively stable over FY23-25

Over FY18-22, NIM for large banks improved by ~20-80 basis points (barring HDFC Bank), driven by lower cost of funds (CASA ratios at ~43%+ currently), higher share of retail and SME loans and lower interest reversals. Share of higher yielding retail+SME loans for large banks increased substantially, by 5-13 percentage points over FY18-Q1FY23. With the tighter liquidity conditions and sharp rise in benchmark rates, outlook for margins in the near term remains positive. However, in FY24 as the COF catches up and lower-spread corporate business written now starts to contribute meaningfully, analysts at IIFL Securities see some moderation on elevated base. However, strong volume growth should continue to drive NII growth.

Core operating performance to remain strong

Banks are in a sweet spot to deliver healthy operating performance with higher loan growth, healthy margins & improving fee income traction, given higher growth in retail and SME segments. Operating expenses would create some drag. Overall core PPOP/average assets for the top-4 private banks is expected to remain stable (+/-5 basis points) for FY25 versus FY22. Treasury income would affect overall PPOP in the near term however.

Multiple factors to aid benign credit costs

Asset quality for the sector, has improved significantly, with GNPA ratio down to 5.9% as of FY22 from the peak of 11.2% in FY18 (lowest since FY15). This has been driven by faster clean up, improved underwriting and diversification of loan mix. With SMA loans at below pre-COVID levels and an under-control restructured book (~0.4-1.0% of loans), analysts at IIFL Securities expect net slippages to remain low, going forward (<1.5% annualized), which should aid in keeping credit cost low. PCR is much stronger at ~71% as of FY22 versus ~50% as of FY18, and with large banks having additional provisions at ~1.0-2.1% of loans (Kotak Mahindra Bank at 0.6%).

Return ratios to expand further

HDFC Bank/ICICI Bank/Kotak Mahindra Bank - all achieved peak RoA in FY22 at 1.9/1.6/2.1% respectively, and analysts at IIFL Securities expect similar RoAs in FY25 as well. Axis Bank and State Bank of India will likely see an RoA improvement of ~25-30 basis points over FY22-25 from a lower base of 1.2/0.7% respectively – with Axis Bank aided by lower provisions and State Bank of India by better core profitability, mainly on the opex front. Overall RoEs should see improvement due to an increase in leverage.

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SBI partners with Tata Power for financing solar projects, launches 'Surya Shakti Cell'

  • India Infoline News Service
  • 01 Feb , 2022
  • 1:50 PM
With an aim to strengthen the existing financing arrangement for solar power projects, the country’s largest lender viz. State Bank of India (SBI) has launched a dedicated centralized processing cell - ‘Surya Shakti Cell’. The Bank has entered into an Agreement with Tata Power Solar Systems Ltd. (a wholly owned subsidiary of The Tata Power Company Limited) for financing solar projects.

Set-up in the Ballard Estate in Mumbai, the Surya Shakti Cell will process all the loan applications for Solar Projects (capacity up to 1 MW) sourced from across India, for installation by business entities as well as households. 

The Bank aims to provide an end-to-end platform for digital and hassle-free journey to the loan applicants for financing Solar projects. With this digital initiative, SBI will offer a complete solution at competitive rates for Solar projects. Besides this, the entire eco system has been thoughtfully set up to ensure that the customers get all necessary support and guidance to choose the right equipment, resolve technical issues at their door steps and get expeditious approvals of their loans at competitive rates.

Dinesh Khara, Chairman, SBI said, “We are delighted to launch the Surya Shakti Cell with an objective to provide a new direction to solar projects financing in India. We are very happy to partner with Tata Power Solar Systems Ltd. in this initiative, which is in line with the global objectives of the COP26 Agreement in reducing the carbon footprint.

We believe, with sustainable solar power, we can solve the prevailing challenges related to use of conventional energy as well as climate change. Initiatives like these will also help build local economies and enable the country to move towards a secure energy future. We, at SBI, are strong proponents of renewable energy and are committed towards reducing carbon footprint in the country.”

Dr. Praveer Sinha, CEO & MD, Tata Power said, “We are pleased to partner with SBI in its Surya Shakti Cell initiative which is a testament to our commitment to making sustainable energy products and services more affordable and accessible to our customers. This first of its kind association will aid us in our #DoGreen mission by encouraging our customers to embrace solar energy solutions and join us in co-creating a greener future."

At around 1:49 PM, SBI was trading at Rs531.70 apiece down by 1.24% while Tata Power was trading at Rs251 apiece up by 2.01% on Sensex.

Kotak Mahindra Bank to pay Rs 0.405 per share dividend on preference shares

  • India Infoline News Service
  • 20 Mar , 2023
  • 11:32 AM
  • These preference shares are perpetual & non-cumulative.

Kotak Mahindra Bank Limited informed that in its meeting, the Board of Directors announced a dividend of Rs 0.405 per share on the 8.10% Non-Convertible Perpetual Non-Cumulative Preference Shares with a face value of Rs 5 each for the fiscal year that will end on March 31, 2023.

“As communicated in our letter dated March 4, 2023, the Kotak Mahindra Bank has designated Friday, March 17, 2023, as the 'Record Date' to determine the rightful owners of PNCPS who are entitled to receive the aforementioned dividend,” said the company in its filing with the bourses.

As per the terms of issuance of PNCPS, the dividend will be subject to withholding tax at the prevailing rate under the applicable law, stated the company.

Further, Kotak Mahindra Bank is in the process of creating a wholly-owned subsidiary by separating its digital platform and super app Kotak 811, as a part of its business reorganization and succession planning efforts.

At around 10.39 AM, Kotak Mahindra Bank was trading at Rs1,691.50 apiece, against the previous close of Rs1,693.10 on NSE. 


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Article Image
  • 01 February, 2022 |
  • 6:05 AM

Set-up in Mumbai, this centralized cell will process loan applications for Solar Projects sourced across India by Tata Power Solar Systems Ltd.

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