Private banks beat market post Q3 results, gain up to 32%

RBL Bank, DCB Bank, IndusInd Bank and Lakshmi Vilas rallied between 15% and 32% post Q3 results.

Private banks (PBs) have beat the markets by gaining up to 32% post their October-December (Q3) earnings. RBL Bank, DCB Bank, IndusInd Bank and Lakshmi Vilas Bank have rallied between 15% and 32% after reporting their Q3 results. In comparison, the S&P BSE Sensex was up in the range of 6% to 8% during the period.

HDFC Bank, Jammu & Kashmir Bank, Dhanlaxmi Bank, Axis Bank, Karnataka Bank, YES Bank, Federal Bank and ICICI Bank too outperformed the market by gaining in the range of 5% to 9%.

Of these, HDFC Bank, YES Bank, IndusInd Bank, RBL Bank, DCB Bank, Lakshmi Vilas Bank and Federal Bank are trading at their respective record highs or close to lifetime highs.

Total 16 private sector banks (PBs) have reported 8.4% year on year (YoY) decline in their aggregate net profit of Rs 10,856 crore in Q3FY17. On sequential basis, the net profit growth was flat.

Thus far in 2017, the Nifty Private Bank index has outperformed the market by gaining 14.5% as compared to 9.7% rise in Nifty PSU Bank index and 13.8% gain in Nifty Bank index, while the benchmark Nifty 50 index was up 9%.

RBL Bank, the largest gainers among the private sector pack, up 32% post Q3 results.  The bank reported a 59% YoY increase in net profit at Rs 129 crore for Q3FY17 on the back of higher interest as well as non-interest income. The bank’s asset quality also remained stable with gross non-performing assets (NPA) as percentage of total assets were at 1.06% in Q3FY17, while net NPA stood at 0.52% on YoY basis.

Moody's Investors Service says that the earnings of Indian banks for Q3 FY2017 show that the government's decision to remove a high proportion of notes from circulation (demonetiation) has led to a slowdown in economic activity that weighed on demand for credit among companies and retail borrowers during Q3FY2017.

"Looking ahead, while commentary from the banks points to a rise in activity in January, it is still below the levels seen in October, and we expect the quarter ending 31 March 2017 (Q4FY17) to show more adverse trends; but the impact on asset quality from demonetization should be manageable for the banking sector," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.

Despite the slowdown, the growth in home loans had been stable. Moreover, economic growth seems to be recovering from demonetisation, although gradually, which should cushion the impact on the banks' overall asset quality, said Moody's.

According to CARE Ratings, “the revival in the banking sector hinges on economic revival which would lead to improvement in asset quality and profitability. On the capital adequacy front, there is substantial requirement of capital, especially for PSU banks given the significant deterioration in their asset quality.”

Analyst at Sharekhan believes that the NPA recognition exercise may not be fully over for the most banks and high slippages may prevail for another 1-2 quarters. However, we expect the NPA mess in the PSBs to plateau, albeit gradually.

“Well run PBs like HDFC Bank and smaller sized PBs such as IndusInd Bank, Yes bank and RBL Bank etc are expected to maintain their commendable performance on the asset quality front”, the brokerage firm said in Q3 earnings review.

	Price on BSE		Returns in %
Bank	Result day	LTP	Price	Sensex
RBL Bank	368.35	486.00	31.94	6.95
DCB Bank	123.90	151.20	22.03	6.15
Lak. Vilas Bank	138.65	162.00	16.84	5.88
IndusInd Bank	1161.85	1339.15	15.26	7.49
HDFC Bank	1267.75	1386.30	9.35	5.62
Karnataka Bank	119.80	129.50	8.10	6.63
J & K Bank	69.80	75.30	7.88	2.38
Dhanlaxmi Bank	24.95	26.80	7.41	2.03
Federal Bank	77.05	82.60	7.20	5.88
Axis Bank	483.70	514.05	6.27	5.88
Yes Bank	1347.15	1430.35	6.18	5.88
ICICI Bank	269.05	282.30	4.92	4.55
LTP : Last traded price on BSE in Rs at 10:29 am.