Expect no significant surprise from ICICI Bank Q2: IIFL

In an interview to CNBC-TV18, Sampath Kumar of IIFL Institutional Equities outlined his expectations from private sector lender ICICI Bank's second quarter earnings. He also shared his outlook on other banking stocks like PNB and SBI.

Below is an edited transcript of Sampath Kumar's interview on CNBC-TV18. Q: What are your expectations from ICICI Bank, what do you think the bank will deliver today? A: The bank should deliver about 22 percent growth on profits. There should not be any surprises in the overall result. There is a bit of an overhang of Deccan Chronicle which is an unexpected risk which has materialized for banks between last quarter and this quarter, but even after taking that into account, the numbers should be alright. Q: What is your rating of ICICI Bank right now? A: We have a buy now. Q: The market seems a little overwrought about Punjab National Bank (PNB) and what it can deliver. Do you expect any asset quality problems to crop up there? A: PNB has been having asset quality issues for a while now. I do not see that trend changing any time soon. We will continue to see both new NPL and restructured loans continuing to rise. Given that, in the corporate India we still have a lot of leveraged balance sheets. We have some sectors like utilities, where there are lots of challenges that remain unresolved. We think that asset quality stress is here to stay, and somebody like PNB who grew rapidly between 2010 and 2011 will have larger proportion of the share in these issues. So, we are not expecting a trend reversal as far as PNB’s performance is concerned. It has been a while for PNB to report a slow net profit growth and that will continue for some more time. The level of stress will also continue to rise for some more time before it turns around. So, some of the well-known issues need resolution and will take some time. Q: What about State Bank of India (SBI)? What do you think that bank might report later? A: In terms of profit growth, SBI will still report a strong quarter. Last year, they had a very low base for the same quarter because of additional provisions that they had to make in that period. So, the net profit by itself cannot be a gauge here. What we have to watch out here is the asset quality. In the first quarter there was a huge surprise on the asset quality, there was a massive increase in NPL additions. We also know that there are some pipeline of restructuring coming through. So you have to watch out for this trend here. Here too, we cannot see anything differently at this point of time. We don't think asset quality issues will resolve any time soon. So, while the profit growth might be good, market focus will remain on asset quality. This is not just PNB or SBI problem, we have seen this in all PSU banks. We saw that in Bank of Baroda results and we will continue to see in other bank results as well.