Financial sector Q1FY24 preview: Expect healthy earnings growth, but margins to moderate going ahead, says Motilal Oswal

livemint.com:

Motilal Oswal Financial Services. The brokerage firm expects financial firms' systemic loan growth to remain healthy in Q1FY24, with healthy credit growth of 15.4 per cent year-on-year (YoY) in June 2023, driven by continued traction in the retail and SME (small and medium-sized enterprises) segments. "The corporate segment has remained sluggish, dragging down overall loan growth.

Home, vehicle, unsecured, and small business segments continue to do well. The credit card business is seeing strong momentum, with robust growth in both spending and the number of cards. We estimate systemic loan growth of 13 per cent in FY24," Motilal Oswal said.

"The rise in the cost of deposits will lead to margin moderation for several banks, though some banks may report stable margins in Q1FY24. Margins are likely to see pressure mainly from Q2FY24 onward, in our view," the brokerage firm said. The brokerage firm estimates slippages to remain under control, which, along with recoveries, should aid the ongoing improvement in asset quality.

"Restructured and ECLGS (emergency credit line guarantee scheme) books are likely to moderate gradually, while low SMA (special mention accounts) books will keep credit costs in check. We estimate banking sector earnings to grow nearly 54 per cent and 23 per cent YoY in Q1FY24 and FY24 respectively," said the brokerage firm. "We estimate our banking coverage universe to deliver about 54 per cent YoY growth in PAT (profit after tax) in Q1FY24 and sustain PPoP (pre-provision operating profit) growth at nearly 35 per cent YoY.