Bank-owned brokerage entities in India are expected to post around 17-20% profit growth in FY22 thanks to increased trading volumes, retail participation and margin funding .
According to the rating agency Icra, the net operating income (NOI) of the bank brokers covered by its coverage could increase by 20-25% year-on-year (YoY) in FY22, supported by revenues from brokerage and stable distribution activities. The ramp-up of other capital markets-related activities could further support the earnings profile.
They posted a record net profit of Rs 3,246 crore in FY21, up 79%. In addition, their capital market-linked lending business took off following changes in margin funding guidelines by Sebi. In line with the market recovery, their loan portfolio grew to just over Rs 7,300 crore in March 2021 from around Rs. 227 crore in March 2017, showing a CAGR of over 100%. This has resulted in an increased share of interest income for these entities.
Bank brokers leverage strong retail franchises. However, the ramp-up of digital initiatives remains essential to support growth. They face fierce competition from discount brokers. Bank brokers’ market share in terms of trading volumes declined in fiscal 2021 and moderated further in the first quarter of fiscal 2022 as they continue to lose share to discount brokers .
The cost structure and operational efficiencies of bank brokerage firms have also improved in recent years, with a focus on streamlining branches. They have made careful efforts towards transitioning to a digital business model, thereby improving the operational efficiency of brokers.
Bank brokers have increasingly turned to other non-brokerage sources of income, namely capital market lending activities, distribution income and investment banking income, Icra added. .
Samriddhi Chowdhary, Vice President and Sector Head of Financial Sector Ratings, Icra, said bank brokers, under the cover of the ratings agency, showed an estimated 28% increase in average daily turnover. (ADTO) at 1.51 trillion rupees for FY21 compared to 1.18 trillion rupees for FY20.
Despite changes in margin requirements, performance remained healthy in the first quarter of FY2022 with an ADTO estimated at Rs 1.64 trillion, driven by favorable retail investor sentiment.
The average daily turnover (ADTO) of the entire market increased to Rs 27.92 trillion in FY21 from Rs 14.39 trillion in FY2020, registering a annual growth of 94%. Trading volumes remain high in the current financial year, with markets recording an ADTO of Rs. 56.36 lakh crores in the first half of the financial year 2022.