Bank brokerages' profit growth to decline in FY22, market shares to moderate

Bank brokerages will continue showing strong performance on retail investors' interest in markets, but profit growth will decline to 20 per cent in FY22, a report said on Monday.

The market shares of the bank brokerages, have, however, been moderating as a result of the discount broking companies' play, the report by rating agency Icra said.

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The net profit growth for such bank brokerages is expected to decline to 17-20 per cent in FY22, after clocking an 80 per cent jump in FY21, it said.

In FY21, the bank brokerages segment reported a 40 per cent jump in revenues, it said.

The bank brokerages' net operating income (NOI) is expected to grow 20-25 per cent year-on-year (Y-o-Y) in FY22 supported by steady broking income along with an uptick in the margin funding and distribution businesses, the report by rating agency Icra said.

"Bank brokerages are expected to continue to enjoy better brand recall, trust, higher credibility and financial flexibility by virtue of being a part of banking groups and would, therefore, remain a prominent part of the industry value chain," it's sector head for financial sector ratings Samriddhi Chowdhary said.

In FY21, the estimated average daily turnover (ADTO) increasing 28 per cent to Rs 1.51 lakh crore from Rs 1.18 lakh crore in FY20, led by the healthy growth in the retail segment, the agency said, adding that the performance remained healthy in Q1FY22 with an estimated ADTO of Rs 1.64 lakh crore, driven by favourable retail investor sentiment.

However, the market share of the sample pool of ICRA-rated bank brokerages in terms of transaction volumes declined in FY2021 and moderated further in Q1 FY2022 as they continue to lose share to discount brokers, she said.

Apart from attracting clients from full-service providers, discount brokerage houses have helped expand the market by bringing on board a large number of first-time investors, she said.

"Going forward, the ability of the bank brokers to effectively ramp up their digital initiatives, attract millennial clients and expand to a newer geographical base such as Tier II and Tier III cities would be critical," Chowdhary said.