Banks' fee income growth may be muted in Q4: Analysts

The fee income of most banks is likely to remain muted in the January-March quarter, casting a shadow on overall earnings growth of public and private sector lenders.

Sector analysts said banks were likely to earn lower corporate banking fees from a year earlier, due to a slowing in new projects in an uncertain economic environment. The growth in retail fees is also expected to be slow, as many banks had waived loan processing charges to attract borrowers.

“The avenues of fee income have dried. Fee income from project finance and large corporate lending has been slow. On the retail side, banks have slashed processing fees and charges. We expect fee income growth for banks to remain flat on a year-on-year basis,” an analyst with a local brokerage said, requesting anonymity as he was not authorised to speak to media.

According to Motilal Oswal Securities, fee income growth of both State Bank of India and ICICI Bank is likely to remain moderate in the last three months of 2012-13. The broking firm expects year-on-year growth in fee income of Bank of Baroda and Canara Bank to remain below 10 per cent.

Ambit Capital, in a note to clients, said it expected Axis to report muted fee income growth on account of lower loan growth. It added Bank of India’s non-interest income growth would remain weak, primarily on account of lower fee income.

The slow growth in fee income might cap the rise in banks’ earnings, feared a few analysts. “The net interest income growth is not likely to be significant, as loan growth has been slow. This, coupled with lower fee income, might limit the overall earnings growth of banks. We expect January-March to be a soft quarter for banks’ earnings,” said an analyst with a foreign bank.

Some analysts, however, were hopeful that gains from treasury operations might overshadow the slow growth in fee income and aid banks in expanding their non-interest income.

“We expect treasury gains to offset muted fee income growth for Punjab National Bank,” said Ambit Capital.

Motilal Oswal Securities said while Oriental Bank of Commerce’s core fee income was expected to be flat from a year earlier, the higher share of non-core income and recoveries were expected to drive overall non-interest income growth.