Public sector banks’ may see their bottomline coming under pressure for yet another quarter due to higher provision towards stressed asset and bond portfolio while banks with higher share of low cost deposit will fare the January-March quarter better, analysts and brokerages predicted.
According to brokers, new generation private banks like HDFC Bank and among public sector banks, State Bank of India (SBI) and Punjab National Bank (PNB) – lenders which has a higher share of low cost deposits and also benefitted from the FCNR (B) swap window that was offered by Reserve Bank of India (RBI) for a limited period last year – are seen to fare the quarter better which saw spike in short term rates denting margins of lenders that has lower current and savings account deposit.
Depite modest credit growth and lacklustre growth in fee income, margins are seen stable on sequential basis as most banks refrained from hiking deposit rates. Short term rates spiked in mid February, but came down later after the central bank infused liquidity.
“Banks with large pool of current and savings account deposit (Casa) deposits would remain unaffected from recent monetary tightening barring their short term fund requirements, which would be adjusted through low cost Casa deposit. Hence, pressure on margins would be lower compared to peers,” IDBI Capital said in a note to its clients.
Analysts predicted most public sector banks to see their net profit declining by 10 -12% on the back of higher provisioning toward non-performing assets and restricted advances. In addition, most public sector banks have to make provision for un-provided marked to market loss of the second quarter arising out of sudden reversal of short term interest rate as RBI hiked marginal standing facility rate by 200 bps to curb speculation in the foreign exchange market amid a weakening rupee in July-August last year.
“We expect earnings divergence amongst our coverage banking stocks to continue, as we
anticipate new private banks to report healthy earnings growth of 18.7% y-o-y, while PSU banks under our coverage are expected to report weak performance with earnings de-growth of 12% y-o-y,” analysts at Angel Broking said.
Private banks had fully provided for the MTM loss in Q2.
Though public sector banks expected see pressure on profitability but asset quality woes, though continues, but is seen peaked.
“We expect private banks to continue to report better quality of earnings than their PSU counterparts, though incremental deterioration in PSU banks is expected to recede,” Karvy Broking said.
The silver lining during the January-March period is likely to be treasury performance with bond yields remaining stable and rise in stocks could help banks to book profit on their investment portfolios.
“The recent run-up in equity markets may see some banks recording gains in their investment portfolio,” Angel Broking said. The stock marker scaled new peaks on several occasions in March on the back of strong portfolio inflows.
Yields on one year and 10 year government securities have fallen 4 bps and 10 bps respectively over the fourth quarter, which may result in modest gains for some banks.