Banking sector earnings review: Who's leading Q1 race?

Q: Did Punjab National Bank (PNB) disappoint you as well or there were some positives that you took away in terms of recoveries from PNB?

A: Given the fact that Punjab National Bank reported very large slippages in the previous quarter one would have expected some amount of recoveries. The bank has done a reasonably good job there close to about Rs 1,500 crore of recoveries or upgradation. One important thing that we noticed in PNB is that there is some shift in management focus going forward from balance sheet growth towards improving the asset quality of the balance sheet.

That focus coming back is the biggest positive that we would take away from the current result. On the slippage front the disappointing performance continues. It seems to be a bit more widespread than what Union Bank reported in their recent result. But the fact that they have shifted their focus from slippages to recoveries is probably the biggest positive that we will see in the current quarter’s result.

Q: What are you expecting from Bank of Baroda today?

A: On Bank of Baroda we are looking at a net profit of close to about Rs 950 crore. On earnings front there is a fair possibility that it could surprise positively. But the whole call will be on the restructured book or on the underlying slippages. The bank could kind of disappoint the entire street.

The fact that they could report higher than expected slippages and restructuring would continue. I do not think anything different on Bank of Baroda’s book to what some of the other PSU banks have reported at least in the last week or so. So to that extent, it would be a little bit of a disappointing performance at least on the asset quality front, if not from the earnings side.

Q: After looking at what the public sector space has reported the last one week, where would you peg expectations with State Bank of India (SBI)?

A: For SBI we are looking at a profit of close to about Rs 3,800 crore for this quarter. It is lower than what the bank reported in the previous quarter. It is less on the earnings front because earnings could see some support from the treasury income side or from an investment depreciation write back. But if one look at the quarterly performance of some of SBI’s subsidiaries at least for this quarter, it is almost similar to any other PSU bank.

Given the management commentary that we have seen in recent past it looks like you are going to see a weak performance at least on the asset quality front and also on the restructured loans front. So from a number perspective SBI could be strong given the fact that it’s coming out from a very low base.

But on the asset quality front we do not see a big improvement at least for the current quarter. Inline with what PNB has reported SBI also seems to have focused mainly on the asset quality front especially over the last 5-6 quarters from now. It has been probably ahead of the curve as compared to most of the other public sector banks and that’s is the key positive in SBI’s numbers.