Q4FY22 BFSI Sectoral Preview

Q4FY22 BFSI Sectoral Preview

by 5paisa Research Team Last Updated: Dec 13, 2022 - 05:29 pm 32.2k Views
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The fourth quarter will likely be characterized by stability and normalization for the BFSI sector after several quarters of volatility. Net interest margins, slippages, and credit costs are likely to remain at least stable, if not improve.

Most banks in their business update have disclosed gains in QoQ momentum in loan growth in the range of 4-8%. Kotak, AU Small Finance Bank, Axis, and Bandhan are estimated to outpace peers with greater than 16% YoY credit growth. SBI, IndusInd, Yes, IDFC FIRST are likely to report 9-13% growth. RBL and City Union Bank will continue to lag industry average growth. 

The corporate credit has been strong; there is no significant volatility seen in the same over the past quarters. In Q3FY22, there doesn’t seem to be any chunky corporate account.

For business loans and MSME, recovery in business activity has led to an uptick in collection efficiency. The collection efficiency in microfinance institutions has witnessed improvement in Q3FY22. Better income from essential services business or agriculture, government support, and financing support from micro-financial institutions have helped borrowers navigate through the covid phase. However, borrowers whose business is dependent on urban markets like auto-rickshaw drivers, cab drivers in tourist places, vegetable/fruit vendors, etc. were impacted the most. Overall, the Portfolio-at-risk (PAR) has been trending downwards since Sep’21. 

Currently, banks are carrying a cumulative provisioning buffer of 2-5% of advances. Some limited utilization of contingency buffer is expected in Q4FY22.

In Q4FY22 Kotak, Indusind, AU Small Finance Bank, and Federal Bank– marginally increased their deposit rates. The benefit of lower deposit cost is largely reflected and should bottom out now. However, one must be cognizant that incremental lending is happening lower than on-book yield and that too more focused on highly competitive segments – namely home loans, better-rated corporates/SMEs, etc. RBL and Karur Vysya Bank have revised MCLR upward by 25-30bps since Dec’21, Kotak and DCB have raised it by 15bps, and, Indusind, Yes by 5bps. City Union Bank on the contrary has cut MCLR rates by 25bps suggesting rising competition in the MSME lending space. Net Interest Margin improvement to be relatively higher for Bandhan in Q4FY22. 

Given geopolitical uncertainties, the RBI is expected to normalize the Liquidity Adjustment Facility fully by the Apr’22 Monetary Policy Committee (MPC) meeting, and it to change its monetary policy stance sooner than expected. One can expect more than 2-3 repo rate hikes in FY23, given the expectations of sticky inflation amidst higher commodity prices, and US Federal Reserve tightening. Nearly 62% of private banks’ FY21 advances were floating rate loans and 43% of the same were EBR-linked. Every 100bps increase in benchmark rates would likely lead to 50-70bps repricing of yields. SBI, Kotak, Axis, and Federal Bank may see relatively more favorable yields compared to IndusInd, RBL, and Bandhan. Similarly, a 125bps rise in wholesale term deposits and a 100bps rise in retail term deposits would have an impact of 30-40bps on the cost of deposits. 
With improvement in business volumes and an uptick in third-party distribution, fee income is expected to rebound QoQ as well as YoY. This quarter, rising bond yields will weigh on treasury gains and can drag earnings. The impact on bilateral trades globally, disruption in demand, supply and payment mechanism, and exchange rate volatility is expected to have some effect on forex-related revenues for banks. However, exchange rate volatility may provide support in the interim on derivative volumes.


Q4FY22 business performance for NBFCs would likely see sustained traction in disbursements and improvement in collection efficiency resulting in a better pre-provisioning operating profit trajectory.

Home loans: With activity revival, strong underlying home sales momentum, improved affordability, and aggressive pricing by players, growth is likely to be higher in Q4FY22 for housing financiers. Banks’ sectoral deployment credit release suggests banks’ home loan portfolio is still lagging with a mere 6.7% YoY and 5.1% YTD growth. Large Housing Finance Corporations, namely LIC Housing Finance, are likely to sustain low-mid teen growth. An affordable housing (low-ticket) disbursement is expected to continue with strong momentum even in Q4FY22. 

Loan Against Property demand amidst slowdown/disruption in business activities was also amongst the worst impacted segments. With the revival in activity levels, financiers are regaining some confidence in this sub-segment. Lenders are cautiously evaluating the upcoming opportunities in construction developer financing and are more focused on financing low-risk retail and Loan Against Property segments.

Micro Financial Institutions segment’s customer base was largely engaged in essential service activities (farming, animal husbandry, etc.), which were least impacted during covid. After successfully weathering two waves and improving the demand scenario, Micro Financial Institutions customers are now looking to expand their business and are open to taking higher loans either to diversify or improve their income sources. Most Micro Financial Institutions players are highlighting that monthly disbursements are already at pre-covid levels.

Auto financiers: During Jan-Mar’22, vehicle sales witnessed good momentum. Supply-side constraints in some vehicle segments have pushed demand for used vehicles. Retail sales improvement in the Consumer Vehicles segment is witnessed as infrastructure-related haulage activities are leading to higher demand for tippers and cargo trucks. Higher movement of goods was also led by steady freight rates supporting fleet profitability. Registrations for tractors are witnessing growth albeit on a lower base, even as rabi harvesting season begins and government procurement improves. 

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