Banks' interest income to dip on low credit growth

With the dip in pace of credit offtake reflecting economic slowdown, banks are expected to report moderate growth in net interest income (NII) for the quarter ending June over the same period in last year, say analysts.

The pressure to make provisions for stressed assets – non-performing assets and restructured loans – will continue to exert pressure on the bottom line. The intensity, though, is expected to be less than that in the quarter ended March.

CRISIL Research in a preview of the June quarter results, said total income was expected to moderate. Net interest margins (NIMs) might decline marginally.

As a consequence, for public sector banks, NII was expected to grow by 15 per cent as against 25 per cent in the corresponding quarter if 2011-12. For private banks, the estimate is 15 per cent against 18 per cent earlier.

The lower NII growth will be driven by sluggish advance growth and a five to 15 basis point contraction in NIMs, led by declines in yields on assets and cost pressures, said Emkay Broking in its review.

P Sitaram, chief executive officer, IDBI Bank, said this was an unusual quarter compared to the first quarter in previous financial years.

With short-term money market rates refusing to ease in the first quarter of 2012-13, the cost of funds has seen push pressure, in comparison to April-June 2011.

Seen sequentially, there is some softening in the June quarter over the one ending March.

Unlike interest income, which is not bringing good news, the softening of yields on bonds might bring some relief from the treasury side.

Emkay Broking said while treasury gains were likely to remain healthy, lower fee income on account of sluggish advance growth should result in decline on other income.

Most banks are likely to report a writeback on investment depreciation, as short-term bond yields had come down by 22-42 basis points over the last quarter.

WATCHING THE BOTTOM LINE
	Net interest income			Net profit
Rs  crore	FY12 Q1	FY13 Q1E*	% change	FY12 Q1	FY13 Q1E*	% change
State Bank of India	9,705.29	11,652.76	20.07	1,584.01	3,633.51	129.39
HDFC Bank	2,971.44	3,587.48	20.73	1,084.46	1,411.93	30.20
Punjab National Bank	3,115.85	3,442.19	10.47	1,115.15	1,251.20	12.20
ICICI Bank	2,410.66	3,031.54	25.76	1,342.52	1,708.96	27.29
Bank of Baroda	2,297.68	2,772.14	20.65	1,032.45	1,155.64	11.93
Filtered for top five banks on net interest income; E: Expected    Data source: Analyst reports; data compiled by BS Research Bureau

The economic slowdown has become much more prominent. The effect is seen in the growing strain on balance sheets of companies, leading to default in payments.