The market share of the bank-owned brokerages continues to suffer at the hands of discount broking firms, said a report by rating agency ICRA. However, bank-promoted brokerages have scored well on financial performance, the report said.

For the six months ended September 30, bank-backed brokerages reported an on-year growth of nearly 40 per cent in total revenues and almost 80 per cent in net profit, said the rating agency.

ICRA expects the net operating income of bank brokerages to grow 20-25 per cent y-o-y in FY-2022 supported by steady broking income along with an uptick in the margin funding and distribution businesses; the ramp-up of other capital markets related businesses could further support the earnings profile.

The net profit for bank brokerages is expected to grow 17-20 per cent during the same period, it said. ICRA’s sample of bank brokerage companies included Axis Securities, HDFC Securities, ICICI Securities, Kotak Securities and SBI Capital Markets.

Rising trading volumes

The domestic capital markets continue to remain on an upwards trajectory after a strong performance in FY2021. The average daily turnover (ADTO) increased to ₹27.92 lakh crore in FY-2021 from ₹14.39 lakh crore in FY2020, registering an annual growth of 94 per cent. Transaction volumes remain strong in the current fiscal, with the markets clocking an ADTO of ₹56.36 lakh crore in H1 FY2022

Samriddhi Chowdhary, Vice-President & Sector Head - Financial Sector Ratings, 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.

Bank brokerages are also increasingly looking at the emerging demographic opportunities and new geographical base, which is facilitated through online channels.

“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 will be critical,” she said.