Stories
Banks, NBFCs Poised for Strong Q2 Growth; Lower Funding Costs to Boost Margins: Bernstein
- •Banks and NBFCs are expected to maintain robust growth in Q2, with lower wholesale funding costs potentially stabilizing or modestly improving margins, according to Bernstein's Pranav Gundlapalle.
- •Healthy liquidity conditions and FCNR flows are contributing to moderated wholesale funding costs, supporting stable or slightly improved sequential margins.
- •While headline earnings for some banks with significant FCNR flows might see distortion, core earnings and net interest income (NII) are projected to remain healthy.
- •The banking sector continues to exhibit strong growth, healthy margins, and benign asset quality, though market share dynamics between public and private sector banks, especially with the ECL transition, remain a key area to watch.
- •The introduction of MDR on UPI has created a substantial revenue pool for banks and fintechs, estimated at ₹27,000 crore by FY28, with limited risk of users reverting to cash.
Key Questions Answered
Healthy liquidity conditions and FCNR flows have helped moderate wholesale funding costs, allowing banks and NBFCs to sustain strong growth while keeping their margins stable or showing a modest sequential improvement.
The introduction of MDR on UPI has created a sizeable revenue pool that Bernstein estimates will reach around ₹27,000 crore by FY28. Because large merchants account for a disproportionate share of payment value and alternative options like cash face rising ATM costs, this revenue pool remains largely protected.
For HDFC Bank, a leadership transition could help address governance concerns and provide greater clarity on its longer-term direction. Meanwhile, a new CEO at Kotak Mahindra Bank delivering sustained growth above system levels could influence its overall growth trajectory.
