Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities and Deepak Shinde, Institutional Research Analyst, HDFC Securities
We expect our coverage universe to clock subdued PPOP growth of 6.9% YoY as business momentum is yet to fully recover from the second wave blues. With the second wave having receded after Q1FY22, we expect the pace of collections and recoveries to witness significant improvement, driving the stressed pool lower. However, complete normalisation of collection efficiency and reversion to business as usual (BAU) is likely to take another quarter, as the economy bounces to full-throttle mode. The incremental provisioning during Q2FY22 is likely to taper off, although lenders are likely to maintain a nominal surplus provisioning buffer. Disbursements are likely to witness healthy growth on the back of pent-up demand and gradual resumption of economic activity. We tweak our FY22E forecasts marginally for select lenders to factor in higher credit costs. We introduce FY24 estimates for our entire coverage universe and roll forward to Sep'23. We continue to favour large banks with strong balance sheets and formidable deposit franchises - ICICIBC (TP INR842) is our conviction pick, followed by SBIN (TP INR540) among large banks; CUBK (TP INR200) and FB (TP INR109) among mid-sized banks; and CIFC (TP INR 652) and CREDAG (TP INR 853) among NBFCs.
- Collections pick up; early delinquencies to dip: After the severe second wave of pandemic disrupted economic activity and collection efforts in the previous quarter, we expect lenders to report strong sequential improvement in collection efficiencies and stressed assets pool. The MFI and CV segments, which were most severely impacted during the second wave, are also likely to report healthy improvement in early-delinquency buckets, although reversion to steady state is only likely by the end of FY22. The spike in early delinquencies in Q1FY22 is likely to spill over into higher GNPAs during Q2FY22, although our recoveries estimates remain largely unchanged.
- Provisioning to taper off; reversion to steady state in H2FY22: With loan loss provisions frontloaded during Q1FY22 (250bps), we expect credit costs for lenders under coverage to normalise during Q2FY22 (190bps). As economic activity further normalises alongside increased focus on collections and recoveries by lenders, we expect credit costs to further taper off during H2FY22.
- Disbursements to rebound on pent-up demand: We expect the pace of disbursements to witness strong sequential growth, particularly in retail and SME segments, on the back of pent-up demand from the previous quarter. Provisional numbers from select lenders and credit cards spends data indicate a similar trend. Banks within our coverage continue to gain market share from PSBs as the banking system credit growth remained muted at ~7% YoY, while the provisional numbers indicate loan growth of ~10% YoY.
- Strong deposit accretion; funding cost tailwinds recede: Aggregate system-wide deposits grew by 9% YoY, well ahead of systemic credit growth (+6.5%). While deposit momentum and liquidity position are likely to sustain, peak funding cost tailwinds are behind us. We also introduce FY24 estimates for our coverage universe and roll-forward the valuation to Sep'23 in our RI-based model.