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Dolat Capital Report
Banking sector’s profitability metrics expected to improve in Q3 FY22 as credit costs moderate and loan growth strengthens. We build in net interest income and pre-provision operating profit growth of 12% and 7% YoY respectively for coverage banks.
Profit after tax growth at 42% YoY will be driven by public sector banks with sharp decline in their credit costs. Sequential NII growth of 5% QoQ is owing to pick up in advances growth and lower interest reversals, despite some pressure on spreads.
While low treasury gains and rising opex will have bearing on PPoP profile, profitability metrics benefit from decline in credit costs across banks as restructurings recede and slippages moderate.
Behavior of Emergency Credit Line Guarantee Scheme loans coming out of principal moratorium will be a monitorable.
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