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Jul 12, 2012, 08.23 AM IST
Private sector banks continue to be the preferred bet over their peers in public sector space in the April-June quarter of the financial year 2012-13. While the former is likely to post a net profit growth of more than 20% year-on-year, the latter's net profit would grow at a slower pace of around 15% on an average barring SBI.
Private sector banks continue to be the preferred bet over their peers in public sector space in the first quarter (April-June) of the financial year 2012-13. While the former is likely to post a net profit growth of more than 20% year-on-year, the latter's net profit would grow at a slower pace of around 15% y-o-y on an average barring the State Bank of India (SBI).
"Private lenders are likely grow higher supported by better asset quality," Bhavesh Kanani, AVP - Equity Research, Centrum Broking told moneycontrol.com.
"The rising number of debt restructuring cases poses threat to all banks, especially to the public sector ones. We will look for the individual bank's management commentary on the pipelines of restructured loans. In this environment, hopes for better recovery and upgrades are also diminished," he said.
When a bank recovers a bad loan partly, it is called recovery. A loan account is upgraded from non-performing to standard asset in case a borrower repays his previous defaults fully. The gloomy economic situation has led to a series of loan default cases by companies. The amount of loans referred to the corporate debt restructuring (CDR) cell ballooned four-fold to Rs 19,500 crore in Q1 as against Rs 4,680 crore Q1, FY11.
With the rise of non-performing assets, the provisioning requirements too will scale up. However, this can be offset by some expected treasury gains. According to Dinesh Sukhla, a banking analyst from Sharekhan Brokerage, the fall in yields will help PSU banks to book some profits in the bonds under mark-to-market (MTM) category. If yields decrease, bond prices will increase.
"On an average, the net interest margin would dip slightly. The credit growth remains on lines of expectations. Banks have disbursed good amount of loans based on their earlier sanctions. We need to get clarity on banks' future loan sanctions, which might not be happening," Sharekhan's Shukla said.
The non-food credit or the amount banks lend to individuals and companies, rose 17.20% year-on-year as on June 18, 2012. The Reserve Bank of India has projected 17% y-o-y growth in FY13. However, the sequential (quarter-on-quarter) growth remains flat.
"Given the current tough macro environment, asset quality stress is a corollary. Slippages for PSBs will remain high for the next one/two quarters while we expect private players to fare well. NIMs will continue to tread lower in the declining interest rate cycle given sluggish deposit accretion. Retail deposit rates expected to remain sticky downwards. We continue with our preference for private banks," said a research report by Edelweiss (India Equity).
The SBI story...
Key pointers for banks' Q1 results:
Tags: State Bank of India, Private sector banks , first quarter , April-June, Bhavesh Kanani, AVP – Equity Research, Centrum Broking , Q1 , Dinesh Sukhla, Sharekhan Brokerage, banks’ Q1 results, ICICI Bank, Axis Bank, Karur Vysya Bank , Yes Bank , Bank of Baroda , Allahabad Bank , mark-to-market , bonds, yields, treasury gains
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