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Banks can cheer the October-December quarter of FY15, as falling bond prices are likely to boost lenders' earnings, experts say. Stabilising asset quality and a moderation in new impaired loan creation will be another positive.
During the September 30-December 31 period, the 10-year government bond yield fell 65 basis points on hope of a rate cut this year. The earnings season for banks will kick off from Tuesday, with IndusInd Bank announcing its results.
A Morgan Stanley report by Sumeet Kariwala and Subramanian Iyer says overall, the headline profit after tax growth is likely to improve 70 basis points on a quarter-on-quarter basis.
Analysts also expect margins to improve or remain stable in the quarter. Some brokers believe there could be outliers such as Axis Bank or Bank of Maharashtra, which might see a moderation in margins with a reduction in base rate. "Most banks are expected to record an improvement on the margin front in the third quarter, as deposit rates have came down but lending rates didn't," explained Vaibhav Agrawal, vice-president, research, at Angel Broking.
Analysts expect most private banks to report stable a asset quality trend, with no major spike in bad loan additions in the third quarter. In the July-September quarter, banks had witnessed a spike in non-performing assets, which inched up 6.3 per cent from the June quarter.
"Private corporate lenders (such as Axis and ICICI Bank) should exhibit broadly stable new NPL (non-performing loan) formation but ICICI Bank could see higher restructuring (pipeline of Rs 1,800 crore, compared to Rs 900 crore of restructuring last quarter). For public sector banks (PSBs), we expect new impaired loan creation (slippages from restructured loans) to moderate to 3.5 per cent of loans (annualised) from 3.7 per cent in the second quarter and 4.7 per cent in the first quarter," added Kariwala & Iyer in their report.
However, on credit growth, private sector banks are expected to outpace their PSBs peers once again. The strong focus on retail loan growth could boost the lending growth of private banks, which have a stronger focus on retail banking.
Slow demand in the corporate sector is one key reason that has led to tepid credit offtake. According to data from the Reserve Bank of India, as of December 12, credit grew 10.8 per cent year-on-year compared to 14.9 per cent during the year-ago period. This was the worst growth since 1997. Credit growth during April-December 2014 was only 5.2 per cent.
"With slowing corporate loans, there is a definite shift by banks to distribute retail loans as risks, at this stage of economic cycle, are lower. Lending has changed in this cycle, compared to the previous ones, though cyclical risks are unlikely to disappear. Private banks are well-placed, given their high share of the retail loan market and retail's contribution to the overall loan mix." Kotak Institutional Equities' M B Mahesh said in a report.
