Banks to post 27% YoY growth in PAT for Q1FY13: Dolat

Dolat Capital has come with its June quarterly earning estimates for banking sector. According to the research firm, banks are likely to post 27% YoY growth in PAT for Q1FY13.

We estimate our banking universe (14 banks, Deposit base 660USD bn) to post 27% YoY growth in net profit for Q1 FY13. Banks’ core operating performance would remain moderate on yearly basis due to base effect, though on sequential basis there would be a pressure on margin due to cut in the base rate, competitive lending environment, lesser credit demand provide borrowers a bargaining power. Also recent up-move in certificate of deposits rates would push liabilities cost marginally. Slower credit off take would be a savior for banks’ margin since it would limit banks’ requirement for funds and banks’ liabilities costs.
On core income level, BoI, ICICI Bank, Syndicate Bank and UBI would be outperformers and on bottomline level, BoI, ICBN, Karur Vysya Bank, Syndicate Bank and SBI would be better off in our universe coverage. We remain positive on the sector selectively; we prefer ICBN, Karur Vysya Bank among private banks and Syndicate Bank among PSU banks.
We expect core fee income to remain moderate due to muted credit growth. Trade finance business income would remain muted due to strain on export oriented business. We expect moderate growth in fee income for banks’ under our coverage, though private banks could better fee income growth due to higher credit book expansion. On provisioning front, we expect NPA provisioning to be flat or lower on sequential basis. We do expect however a sharp rise in restructured loan book. On banks’ investment trading book, banks would make some MTM gains due to decrease in bond yield across tenures.
Overall, in Q1FY13, banks’ profitability would be determined by incremental fall in interest income (due to cut in the base rate and repricing effect) on core operation level and NPA provisions on provisioning level. Negative surprises are expected on provisioning level particularly in case in state-owned banks. Our FY13 estimates currently build in a softening of rates by upto 50 bps (RBI repo rate). Inflationary pressure led by persistent supply-side gaps and continuous depreciation of domestic currency would further restrain the central bank to cut policy rates. Also, higher government borrowing program could keep G-Sec papers bond yields elevated even if RBI cuts policy rates. We do not expect money markets rates to come down meaningfully aiding banks’ whole-sale borrowings costs.
 
In FY13, scheduled commercial banks’ (SCBs) credit offtake growth would range in 15-17% band. Majority of credit demand would come from retail and SME sectors; large corporate segment could witness muted credit off take. We maintain our preference for private sector banks mainly due to continued headwinds on asset quality front. We believe that private sector banks would be better placed to contain their asset quality deterioration vis-a-vis state-owned banks. Also, on core business front, private sector banks have been more agile in changing their asset composition and ALM to contain erosion in margin. 

• Home
• Markets
• Loans
• SPIN2WIN
• News
• Portfolio