Banks treasury gains to remain healthy at 24% growth: Emkay

Emkay Global Financial Services Q1FY13 Result Preview for banking and financial services sector:

We expect NII growth for our banking coverage universe to come in at 0.9% qoq (20.2%yoy) as against ~4-7% qoq (16- 21% yoy) growth reported in earlier two quarters. The lower NII growth to be driven by sluggish advance growth and 5-15bps contraction in NIMs led by decline in yield on assets and cost pressures.

While treasury gains are likely to remain healthy at 24% qoq growth, lower fee income on account of sluggish advance growth to result in 19% qoq decline on other income. Resultantly net profit growth to remain muted at 0.7%qoq (53.7%yoy), with PSB’s expected to grow at 3.3% qoq as against decline of 4.7%qoq for private banks.

Most of the banks are likely to report write back on investment depreciation, as short term bond yields has come down by 22-42bps over the last quarter.

Advance and deposit growth (as on 15 June, 2012) remained stable at 17.8% yoy and 14.3% respectively. However on YTD basis while advances growth remains marginally negative at -0.1%, deposit growth was slightly up by 0.3%. Resultantly, CD ratio declined to 75.3% as on 15th June from 77% in April 6, 2012.

Asset quality pressure likely to persist with couple of big corporate accounts like Hotel Leela, Moser Baer, HCC, Bharti Shipyard along with few SEB’s accounts likely to be restructured during the quarter.

Slippages are expected to remain higher during the quarter with expected slippage rate (annualised) at 1.7% vs 1.8% for previous quarter. Recoveries could also be high this quarter but will not continue in coming quarters. Resultant provision cost (annualised) for the quarter to come down to 0.79% from 0.90% in Q1FY12 and 0.97% in Q4FY12.

Our top picks for the quarterly results HDFC Bank and United bank in the banking space. Mahindra Finance and CRISIL are our top picks in NBFC space.