Brokerage firm CLSA remains positive on top banks with Axis, ICICI, and SBI being the top picks in the sector. The broking firm says that in the near term, banks with a higher share of secured loans, including mortgages, can perform better on growth.

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The CLSA note, quoting RBI data mentions that corporate credit growth remains muted (flat year-on-year) driven by corporate deleveraging. Incremental commentary from banks and corporates does seem to suggest, capacity utilization is inching up (65 percent currently) but there is still some time before the capex cycle turns the corner (should largely happen at 75 percent capacity utilization).

The MSME book rose just Rs 20,000 crore year-on-year despite Rs 2,00,000 crore in Emergency Credit Line Guarantee Scheme (ECLGS) funding . With the capex cycle, industrial credit growth contribution has come down to 5 percent over the past five years.

CLSA notes that the growth momentum will continue to improve. The sequential trends remain strong with over Rs 50,000 crore in net retail loan book additions in February 2021 and Rs 1,30,000 crore in retail loan accretion over the past three months implying an 18 percent annualized growth run-rate.

Reported year-on-year retail credit growth inched up to 9.6 percent from 9.1 percent in January 2021. The base impact is expected to be favorable for retail credit from Mar 2021 onwards, the CLSA note said.

Mortgages grew Rs 22,500 crore month-on-month, implying an over 15 percent year-on-year run-rate for the past three months, the note said.

Credit card receivables were flat month-on-month, up 5 percent year-on-year at Rs 1,20,000 crore. This was possibly due to the fact that the largest player was not able to issue cards.

Non-banking financial companies (NBFCs) have been a key growth driver for banks contributing 15-20 percent of credit offtake post-IL&FS.

"Overall February 2021 data corroborates strong disbursement trends indicated by banks and the trends in retail credit seem to have sustained beyond just the festive season," the CLSA note said.

Retail loan growth has driven a 50 percent credit growth post-FY15 and retail and bank-lending to NBFCs have driven 70-75 percent of the credit for banks.

The report states that banks with high secured asset mixes could do better. Sustainable Pre-provision operating profit (PPOP) growth in the high teens (pre-COVID expectation) for the top four private banks is contingent upon growth recovering to 8-10 percent at the system level. The trajectory will require a 4-6 percent higher growth than the system for private banks driven by market share gains and expect a gradual recovery in credit growth to 8-9.5 percent by FY 2022. With the capex cycle still some time away, retail growth will need to recover to 15 percent year-on-year.