| We recently hosted an Indian Financials road trip where investors had extensive interaction with 25 corporates. Key takeaways: (1) credit growth will likely accelerate in 2H, deposit growth too will improve as banks have raised deposit rates, and banks remain optimistic on CASA targets despite the rising rate environment, (2) not all banks were confident of margin improvement given less pricing power, which they expect to return with credit growth and (3) banks expect asset quality to slip in FY2011, though remain manageable and improve in FY2012.
Insurance industry interactions were more tepid in tone; while most companies are confident of long term potential they are less positive on growth and margins in the short-term. Focus is on cost cutting and calibrating strategies to minimize impact. Life Insurance Corporation (LIC) is expected by the companies to benefit in the short-term from private sector pain.
Banking Sector – In good shape
Credit growth – consensus view of 20-25%, more diverse from here:
Most banks guided for between 20% to 25% growth for FY11E, with CRISIL forecasting it at 22%. There was widespread agreement that growth thus far has been driven by the Infrastructure sector primarily due to 3G licenses in telecom as well as roads, power and ports. Banks we interacted with stated that credit growth for H2FY11E will be:
1. More diversified as sectors other than infrastructure start drawing down onapproved limits; furthermore a lot of the private banks are low on their priority sector advance targets for the year as per CRISIL which would also lead to diversification.
2. Higher as re-bounding CAPEX cycle will translate into credit growth withequity/non fund based source of funds having played a bigger role so far Of the banks we met, ICICI Bank stated intent to accelerate credit growth after having deleveraged for 2 years. Vijaya Bank was the other outlier intending to maintain below industry FY11 growth, in the face of asset quality issues.
Deposit growth – Not overtly concerned, to catch-up with rate hike:
All banks we interacted with unanimously dismissed lower deposit growth as a cause for concern. The industry guided for deposit growth at around 18% for the year in line with RBI guidance. Most banks seem to believe that with deposit rates rising and credit growth picking up, deposit growth would gain traction from the current 14%. The current disconnect between deposit and credit growth is being managed as banks are utilizing their excess SLR and refinancing. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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