With demand for credit showing good growth, banking stocks continue to do well. Private sector lender ICICI Bank closed Friday’s session at Rs 901.55, up 0.29%, hitting Rs 911.75 in intra-day trading, a 52-week high. The Bank of Baroda (BoB) stock also hit a 52-week high of Rs 557 on Friday – it ended at Rs 553.45, up 1.6%. State Bank of India also hit a 52-week high of Rs 557 before closing at Rs 553.45, up 1.61%.
On Friday, the Bank Nifty closed at 40,415.7, up 0.5%. Since mid-June, the gauge has added nearly 24%.
The loan growth in the fortnight ended August 26 came in at well over 15% year-on-year. The outstanding credit in the banking system stood at Rs 124.3 trillion at the end of August 26, with banks having lent close to Rs 6 trillion between April and end-August. In contrast, banks had seen a negative loan growth of about Rs 60,000 crore during the year-ago period.
The worry for banks would be more on the deposits front, given these have been growing at a much slower pace. For instance, between April and August, aggregate deposits increased by Rs 5.3 trillion, compared with Rs 4.03 trillion in the comparable period of 2021.
Lenders have been raising funds via AT-1 bonds. SBI has mopped up money via an AT-1 tranche at the lowest rate for any bank so far this year. The issuance was for bonds worth Rs 6,900 crore at 7.75%.
Morgan Stanley believes that strong balance sheets, decreasing macro concerns and improving capacity utilisation set the stage for a capex up-cycle in F24-F25. The brokerage believes this could drive a second leg of re-rating at Indian banks. The brokerage has raised loan growth estimates by two percentage points to 16% for F24 and 3 percentage points to 17% for F25. This, coupled with lower credit costs, drives earnings estimate upgrades. The firm said it was penciling in a 2-percentage-point upgrade in pre-provisioning profit growth and higher RoE (return on equity) assumptions.