Indian Banking Sector Q2 Earnings Snapshot

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In the second quarter of FY23, we expect the yield ratios of our banking sector coverage universe to increase; Stronger balance sheet growth, expanding margins, lower cash-related losses and lower cost of credit would collectively drive performance ratios on a sequential basis.

According to the latest printouts from the Reserve Bank of India, the credit portfolio of scheduled commercial banks grew by 2.0% QoQ and 15.3% YoY, but deposit mobilization increased only 0.4% quarter-on-quarter and 9.2% year-on-year.

In absolute terms, SCBs recorded net credit addition of 2.5 trillion rupees compared to 4.9 trillion rupees in the first quarter of FY23 (to end June 2022) and 0.26 trillion in the second quarter of FY22. There are distinct signs that the pace of credit and deposit growth is slowing in Q2 FY23 compared to Q1 FY23.

We expect banking industry margins to increase by around 13 basis points in the second quarter of FY23, based on published industry data and assumptions for net default rates, non-performing assets gross, the composition of current accounts and savings accounts and money market rates. We did not take into account a few factors related to foreign operations (lending rate, deposit and borrowing costs).

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