Banking sector earnings preview: Expect a decent YoY earning growth in Q2 despite NIM compression, says Motilal Oswal

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Motilal Oswal Financial Services. Apart from the numbers, management commentaries on unsecured loan growth and margins, traction in deposits and opex trends, the traction in fee income and treasury outlook are expected to be in focus in the banking sector's Q2 scorecard.

Motilal Oswal Financial Services expects systemic loan growth to remain healthy at 14 per cent (YoY) in FY24, largely driven by continued traction in the retail and SME segments. The brokerage firm highlighted that the corporate segment has also seen some recovery, while growth in personal loans and real estate has been robust at 31 per cent and 39 per cent YoY, respectively.

"The home, vehicle, unsecured, and small business segments continue to do well. The credit card business is seeing strong momentum with robust growth in spending and new card issuance," Motilal Oswal said.

Also Read: Earnings preview: Experts expect more misses than hits in Q2; how can it impact market sentiment? Moreover, the brokerage firm believes the systemic deposit growth of the banking sector has improved to 12.8 per cent YoY (adjusted for merger), aided by a benign base, the discontinuance of the ₹2,000 currency note and an improved real rate of return. Hence, the brokerage firm underscored, that the gap versus credit growth has moderated further to 2.3 per cent in Sep’23 (excluding HDFC, HDFC Bank merger).

"In Q2FY24 so far, the banking system has added ₹2.28 lakh crore of deposits ( ₹84,500 crore adjusted for the HDFC merger) and while we expect deposit mobilisation to pick up significantly toward the quarter end, the overall accretion would still be important to monitor as HDFC Bank alone is going to account for a significant deposit market share. We estimate sectoral