The banking sector, led by the State-run ones, is set to report a whopping 5-35 per cent drop in net profits in January-March period of the past fiscal due to wage revisions, tax reversals and lower core income, says a research report.
Bank of America-Merrill lynch in its earnings preview said banks are unlikely to deviate much from past. State-run banks are set to report decline in headline profits but private lenders will be reporting good numbers.
“We are likely to see state-run banks’ earnings disappointing at net profit level with a decline of 5-35 per cent y-o-y, as they are to provide for wage revisions, and many of them had tax reversals/write-backs in Q4 of last fiscal owing to higher provisions.” it said.
Also, “operating earnings for most state-run banks are to be largely flattish driven by better topline (flattish to 20 per cent growth) being offset by lower non-interest income,” BofA-Ml report said.
On the other hand, “private banks are set to report net profit growth of 20-30 per cent driven by retail lending,as most of them did not cut retail rates though their higher share in overall loan growth is mixed. Also, asset quality of most private lenders will be largely comfortable.”
On State Bank, the report said, “the largest lender may surprise on volumes, recoveries, but margins will be weak, showing a 7-8 per cent y-o-y decline in net profit due to higher wage provisions and decline in margins. However, key to watch for in SBI will be volume and recoveries trend.”
Among other larger state-run banks-- PNB, BoB, BoI and Canara-- headline earnings are expected to be down by 5-25 per cent owing to higher tax outgoes, while their operating profits may be flat to 25 per cent. Only OBC may report headline profit growth in Q4, as base was weak due to higher NPls, says the report.
Overall, the main data to watch out for will be slippages, margins and recovery trends. Among private players, HDFC Bank and ICICI are likely to report stable numbers, while Axis, Yes, IndusInd are key to watch, it adds. The report sees no material deviations in the earningsof HDFC and ICICI from past trends and says HDFC Bank is set to yet again lead with a 30 per cent year-on-year (y-o-y) growth, followed by ICICI with 20 per cent growth in profit.
However, Axis may report a lower 18-19 per cent net profit growth, the report said and warned that key to watch out for in Axis will be its asset quality trends, as its Deccan exposure can play spoilsport.
On smaller private lenders like IndusInd, the report said it may report 27-28 per cent spike in profit growth, while Kotak may report a profit growth of 20 per cent driven by topline, as its growth is seen at 30 per cent and NIMs stable at 4.6 per cent.
On SBI, the report says it may surprise on upside with an 18 per cent growth driven by housing balance transfers but warns that its margins may be down 15-50 bps y-o-y but stable q-o-q as incremental lending at much lower yields.
SBI’s NII growth may be down 3 per cent y-o-y, as higher loan growth of 19-20 per cent y-o-y may be offset by weaker margins which are likely to be down 50-55 bps y-o-y. PTI