Bank-owned brokerage houses to post profit growth of up to 20% in FY 22: Icra

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Bank-owned Brokerage Entities in India Expected to Show Approximately 17-20% Profit Growth in FY22 Thanks to Increased Trading Volumes, Retailer Participation and Margin Funding .

According to the Icra rating agency, the net operating income (NOI) of the bank brokerage houses under its cover could increase by 20 to 25% year-on-year in fiscal year 22, supported by stable brokerage income and distribution activities. The rise of other capital markets activities could further support the earnings profile.

They posted a record net profit of 3,246 crore rupees in FY21, up 79%. In addition, their capital market lending activity took off following changes in margin funding guidelines by Sebi. In line with the market rally, their loan portfolio grew to just over Rs 7,300 crore in March 2021, up from around Rs. 227 crore in March 2017, showing a CAGR of over 100%. This has led to an increase in the share of interest income for these entities.

Bank brokerage firms benefit from strong retail franchises. However, the rise of digital initiatives remains essential to support growth. They face intense competition from discount brokers. The market share of bank brokers in terms of transaction volumes declined in FY2021 and moderated further in Q1 FY2022 as they continue to lose shares in favor of discount brokers. .

The cost structure and operational efficiency of bank brokerage firms have also improved in recent years with an emphasis on branch rationalization. They have made cautious efforts towards the transition to a digital business model, thus improving the operational efficiency of brokerage houses.

Bank brokerage firms are increasingly turning to other non-brokerage sources of income, namely capital market lending activities, distribution income and investment banking income, the said. Icra.

Samriddhi Chowdhary, vice president and head of financial sector ratings, Icra, said bank brokers, under the rating agency’s cover, posted an estimated 28% increase in average daily turnover (ADTO) at Rs 1.51 billion in FY21 against Rs 1.18 billion FY20.

Despite changes in margin requirements, performance remained healthy in the first quarter of fiscal 2022 with an ADTO estimated at Rs 1.64 trillion, thanks to favorable sentiment from retail investors.

The average daily turnover (ADTO) of the entire market rose to 27.92 trillion rupees in FY21, from 14.39 trillion rupees in FY2020, recording annual growth of 94%. Trading volumes remain high in the current fiscal year with the markets registering an ADTO of Rs. 56.36 lakh crore in S1 FY2022.

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