Aditya Shah
@AdityaD_Shah
Q4FY23 result season is about to kick off!
Bank results are just around the corner!
There are so many parameters to analyze that many get confused
How to objectively analyze the bank results?
🧵on the important parameters needed to analyze bank results
Lets go👇
A thread
3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Why are Banks important?
Financial services form 37% of the Nifty.
Banks like
HDFC Bank
ICICI Bank
Kotak Bank
Axis Bank
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Have a big weightage on the index.
So important to correctly analyze the results
3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Credit Upcycle:We are in a credit upcycle
System loan growth is at 15-20%
System deposit growth at about 10%
Bank balance sheets are absolutely clean
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3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
So how to analyze?
1. Loan Growth:System loan growth is at 15-20%
The composition of the Loan growth is the key.
🏦Too fast growth in unsecured can increase the risk
🏦Just growing retail and ignoring wholesale lending can a problem
3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Lets look at the Loan portfolio of ICICI Bank
Loan growth at 19.7%
Retail growth is at 23.4%
Mortgages form 62.4% of the loan book
Corporate growth at 18.9%
A well-diversified book b/w secured and unsecured.
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Thereby controlling the risk for the bank
3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Deposit growth:At a time when most banks are posting strong credit growth.
Deposit growth can be a differentiating factor
System deposit growth is at 10%
Banks, where deposit growth is strong, are the ones becoming
stronger
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3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Cost of funds:Cost of funds is a key metric to watch!
Private banks
Borrow at 5.4%
Lend at 10.10%
Small Finance banks:Borrow at 8.2%
Lend at 17.77%
3:58 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Capital Adequacy:Capital will be vital for Banks to grow in this credit upcycle!
Banks with strong Capital are the ones to look out for
🏦Large private banks have strong capital
🏦PSU Banks have poor capital adequacy ratios
3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Slippages and Gross NPAs:Banks have spent last 2 years cleaning up the Balance Sheet:NPAs and slippages should be minimal.
Any bank still struggling with NPAs has a real problem
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3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Non Performing asset(NPAs)ICICI Bank:-
🏦Gross NPAs declined to 3.07%
🏦However, the Gross NPA addition was at 5700cr which was slightly
higher
🏦Bank has a PCR of 82%
🏦Net NPA declined to 0.55%
NPAs are no longer a problem for the Bank
3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Special Mention Accounts(SMA) Book:Special Mention Accounts (SMA) are accounts that have not paid
interest for 0-90 days and are prime candidates to turn into NPAs
Any increase in these accounts is a key monitorable
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The SMA account for Ujjivan is on a decline
3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Management Commentary on
Recovery in the rural economy
Competition in the deposit scape
Competition for handing out retail loan
Trajectory of the wholesale loans
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Some key monitorable
3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Investment in technology:Some banks like HDFC Bank are clearly lagging in technology.
ICICI Bank is aggressively investing in its technology stack
A key monitorable will be how these banks continue to spend on
technology
3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
Conclusion:We are in a credit upcycle:Banks will continue to post robust numbers
Loan book composition is a key metric to watch
Deposit growth will be another metric
Slippages and NPAs should be minimal for most banks
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3:59 AM APR 11, 2023
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Aditya Shah
@AdityaD_Shah
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Aditya Shah
@AdityaD_Shah
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