The bank has a well-laid strategy for the growing small business loans (most of which qualify as priority sector loans) and cross-sellings to acquired customers that would help granular retail fees growth. Fees from activities like financial advisory/financial markets rose in FY14. However, traction in retail and transaction banking fees could provide cushion in case lumpy source of fees moderate.
On the balance-sheet front, initial focus of the bank will be on growing the liability side first and as customer relationships age, focus would be on cross-selling retail assets. The bank has been expanding branches at a higher pace. On an average, it has added 90-100 branches a year over FY11-14, up from an average of 40 branches per year over FY06-11.
Asset quality performance remains impeccable; however, we conservatively factor in higher credit cost of 0.6% over FY15-16 as against 0.3% in FY14. This is expected to be compensated by an improvement in the core income and better net investment gains. Further, strong PCR of 85% and excess provisions of 0.4% on loans would provide cushion.
- Motilal Oswal