 "Higher provisions to hit bank results in Q3")
Commercial banks, especially public sector banks (PSBs), are likely to see their income and margins under pressure in the third quarter ended December 2015 (Q3 FY16).
The dent in income from base rate cut when loan growth is tepid and higher provisions for ageing non-performing assets (NPAs) will weigh heavily on the bottom lines of PSBs. The private sector counterparts with less exposure to troubled infrastructure sector and big-ticket corporate loans could show up better performance, according to analysts.
If the Reserve Bank of India (RBI) sticks to its stand and make provisions to clean up books by March 2017, there could be more red ink on books.
CRISIL Research in preview of Q3FY16 for PSBs said the total income was estimated to increase moderately by six per cent (year-on-year), as large borrowers are using other alternatives like commercial papers to fund their requirements, and also due to base rate cut.
The gross non-performing assets (GNPAs) to remain at the current high levels, as delinquencies are expected to rise. The high GNPAs will restrict net interest income growth to five per cent y-o-y, despite some banks lowering deposit rates, it said.
The dent in income from base rate cut when loan growth is tepid and higher provisions for ageing non-performing assets (NPAs) will weigh heavily on the bottom lines of PSBs. The private sector counterparts with less exposure to troubled infrastructure sector and big-ticket corporate loans could show up better performance, according to analysts.
If the Reserve Bank of India (RBI) sticks to its stand and make provisions to clean up books by March 2017, there could be more red ink on books.
CRISIL Research in preview of Q3FY16 for PSBs said the total income was estimated to increase moderately by six per cent (year-on-year), as large borrowers are using other alternatives like commercial papers to fund their requirements, and also due to base rate cut.
The gross non-performing assets (GNPAs) to remain at the current high levels, as delinquencies are expected to rise. The high GNPAs will restrict net interest income growth to five per cent y-o-y, despite some banks lowering deposit rates, it said.
Ashwani Kumar, CMD of Dena Bank told Business Standard: "There is nominal growth in top line (income) for all. If that does not grow, it affects the bottom line (profit). With the ageing of non-performing loans, banks will need to make more provisions. There will be tough times."
Kotak Institutional Equities in its report said banks are heading into a quarter where banks have already cut base rate of over 30bps in September. Also, interest rates have not been too favourable plus RBI has been prodding banks to accelerate provisions for potential and reported bad loans. Hence, it does not appear to be the most promising quarter from a reporting perspective.
Tepid demand for loans implies revenue growth would be under pressure for most banks. Overall, the revenue growth could be nine per cent (y-o-y). The private bank pack is expected to show a higher pace of 14 per cent.
Again banks as group the net interest income could expand by eight per cent (y-o-y) (private banks at 15 per cent y-o-y). There is less concern for retail-oriented banks, while those dominated by corporate balance sheet would continue to struggle, Kotak said.
Manjunatha MSR, director (ratings) at Brickwork Ratings, said most banks reduced base rates by 25 basis points in Q3, whose effect is immediate. They also reduced interest rate on deposits by 25-50 basis points. But its benefit would accrue only over period. The combined effect is dent in net interest margin (NIM) of the-five basis points.
The NIMs of state-owned banks could be 2.35 per cent (down from 2.40 per cent levels) while private counterparts could see NIMs move to around 3.70 per cent from 3.75 per cent, he said.
Kotak Institutional Equities in its report said banks are heading into a quarter where banks have already cut base rate of over 30bps in September. Also, interest rates have not been too favourable plus RBI has been prodding banks to accelerate provisions for potential and reported bad loans. Hence, it does not appear to be the most promising quarter from a reporting perspective.
Tepid demand for loans implies revenue growth would be under pressure for most banks. Overall, the revenue growth could be nine per cent (y-o-y). The private bank pack is expected to show a higher pace of 14 per cent.
Again banks as group the net interest income could expand by eight per cent (y-o-y) (private banks at 15 per cent y-o-y). There is less concern for retail-oriented banks, while those dominated by corporate balance sheet would continue to struggle, Kotak said.
Manjunatha MSR, director (ratings) at Brickwork Ratings, said most banks reduced base rates by 25 basis points in Q3, whose effect is immediate. They also reduced interest rate on deposits by 25-50 basis points. But its benefit would accrue only over period. The combined effect is dent in net interest margin (NIM) of the-five basis points.
The NIMs of state-owned banks could be 2.35 per cent (down from 2.40 per cent levels) while private counterparts could see NIMs move to around 3.70 per cent from 3.75 per cent, he said.