Large private banks well placed to accelerate market share gains: MOFSL

New Delhi: Large private banks are well placed to accelerate market share gains, Motilal Oswal Financial Services (MOFSL) said in a report.

As per the report, the rise in market share is expected to take place on the back of strong capital position, robust liability franchise, and higher provisioning coverage on stressed assets.

The report pointed out that most large private banks reported 3-7 per cent QoQ growth.

“Though the strong sequential growth is supported by ECLGS disbursements, the growth in many business segments has crossed pre-Covid levels. We expect the growth momentum to remain strong as we project FY22E or FY23E systemic loan growth at 11 per cent or 13 per cent, with the mix of retail loans increasing to 31 per cent.”

“This will be led by 14-19 per cent growth in ‘Private Banks’. We estimate Private Banks share in total banking credit to increase to 45 per cent by FY25E.”

In addition, MOFSL expects large private banks to see strong improvement in profitability led by market share gains, lower cost of funds to support margin, retail bounceback to revive fee income trends, and controlled credit cost as they are carrying excess provisions.

“We expect aggregate RoE for ‘Private Banks’ in our coverage universe to improve to a decadal high of 16.3 per cent by FY23E.”

“Among PSUs, we estimate RoE for SBIN to touch 15 per cent by FY23E. Earning swings and improving return ratios will continue to drive a re-rating in banking stocks.”

On the overall banking industry, the report said that large banks have shown strong improvement in collection efficiency, while slippages or restructuring outlook remains in control.

“Pro forma GNPA or NNPA ratios have increased marginally across banks like AXSB, HDFCB, and ICICIBC… Restructured book across all large banks stood in the 0.3-0.8 per cent range, boding well for a normalised slippage trajectory from FY22E onwards.”

“Higher pro forma coverage, coupled with higher quantum of contingent provisions, should avert any provisioning shock and aid normalization of credit cost for larger banks over FY22E or FY23E, though elevated provisioning will continue in a few mid-size peers.”

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