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Banks: Growth and asset quality improving, margins can play a spoilsport

Despite improving fundamentals for the banking sector, margin compression is likely for the sector going forward. Moreover, sustained weakness in the global and Indian economy may play a spoilsport on growth and asset quality as well one year down the line.

September 10, 2022 / 02:59 PM IST

Nitin Bhasin, Co-Head and Head of Research, and Pankaj Agarwal, Analyst (Banking & Financial Services) at Ambit Institutional Equities

Contrary to fears, the Indian banking sector has emerged largely unscathed from the COVID crisis. In fact, the sector is going through one of the best phases during the last decade with accelerating credit growth and falling non-performing assets (NPAs).

Acceleration in credit growth across the board

Credit growth has been accelerating for Indian banks over the last year with YoY credit growth hitting a 10-year high of 15 percent in August 2022. We expect the credit growth for the sector to sustain going forward due to (i) Broad-based nature of the growth; (ii) some market share shift from corporate bonds to banks; (iii) increasing capacity utilisation/capex in the manufacturing/industrial sector.