The banking sector has been plagued by asset quality concerns over the past several quarters. IL&FS exposure was a key stressed account amongst banks but this time saw the first quarterly profit in the last five quarters.

Share Market Live

NSE

Suresh Ganapathy, Banking Expert, Macquarie Capital Securities in an interview with CNBC-TV18 shared his views on the sector and stocks outlook.

He said, "Relative upside for the sector is more in terms of where we see rerating potentials. HDFC Bank and Kotak Mahindra Bank are almost fully valued although from a five year perspective, the power of compounding story will continue in them but there could be greater upside in ICICI Bank or an Axis Bank where valuations are cheap."

Moreover, as you ride the recovery in asset quality cycle, clearly ICICI Bank, Axis Bank, Yes Bank would give relatively better upside at least over the course of next 12-18 months” he said.

With regards to slippages, he said the average run rate of slippage ratio could be 2 percent over the next couple of years, which is around Rs 2-2.5 trillion of assets per year. The rate was running at around 5 percent, which will be around 2 percent and therefore be relatively beneficial, he added.

“As far as IBC accounts are concerned, our report points out that the coverage ratio for banks in the IBC accounts if 70-75 percent,” he said. Moreover, recently all the banks have improved their provisioning coverage ratios very sharply, he added.

When asked about loan growth and margins outlook, he said the loan growth for the private sector banks is expected to be around 20 percent and 10 percent for public sector banks and the overall system loan growth should be around 14-15 percent, predominantly driven by retail. Retail is growing at 18-20 percent and corporate loan growth is in single-digits, he added.