EARNINGS PREVIEW: Steady Goes the Ship

Riding on the strong growth in credit offtake, banks are expected to report better results in Q3FY23

- TEENA JAIN KAUSHAL

WHILE THE BROADER Nifty 50 Index gave a return of just 2.5 per cent in April-December, 2022, the Nifty Bank Index gave a return of 16 per cent during the same period. If you think this is a lot, then you need to consider the return of 52 per cent given by the Nifty PSU Bank Index.

The banking sector has outshone the broader market as well as other industry sectors, led by impressive growth in credit, rising interest rates, and improving asset quality. Riding on these, banks alone have given a total profit of nearly ₹59,000 crore in Q2FY23; a jump of 59 per cent. So, will these factors continue to drive the banking industry's growth in Q3FY23? A report from brokerage firm Sharekhan by BNP Paribas states that banks are likely to report a 35 per cent year-on-year (YoY) growth in earnings in Q3FY23. The earnings growth will be led by healthy growth in loans and lower credit costs. Net interest income (NII) growth is also expected to be higher at 23 per cent YoY. The quantum of margin expansion is expected to be lower compared to the previous quarter due to the increased cost of deposits to garner a higher share of retail liabilities, the report states.