Restructured asset, a key trigger for Banks' Q4 results
Banks are likely to post strong bottom line growth on the back of lower base. However, the pipeline of restructured assets will be a key trigger for their share prices to react, said banking analysts adding that the level of non performing assets (NPAs) may have stabilized for private sector banks.
April 13, 2012 / 11:03 IST
Moneycontrol Bureau
Banks are likely to post better bottom line growth on the back of lower base. However, the pipeline of restructured assets will be a key trigger for their share prices to react, said banking analysts adding that the level of non performing assets (NPAs) have stabilized for private sector banks while public sector lenders would continue to reel under rising NPAs."Lower base would help lenders post good profit numbers," Bhavesh Kanani, an analyst from Centrum broking told Moneycontrol.com."Due to higher provision on account of employees pension fund banks’ net profit level was much lower last year. Hence, profits are expected to be higher this year on lower base. Recently, there has been a lot restructuring cases. Market will be keen in knowing the details of individual restructuring of accounts and also an outlook for Q1, FY13," he said.In January, corporate debt restructuring (CDR) cases hit all time high since its inception in 2001-02. Banks restructure their loans either through CDR forum (for big loans in consortium with other lenders) or at the individual bank level for small loans. Analysts are of opinion that individual restructurings have gone up substantially. It will have its impact on profit margins both in Q4, FY12 and Q1, FY13. According to RBI norms, banks should make 2% provisions for standard restructured assets while without restructuring the requirement is just at 0.40%. Restructuring means that the bank revises the original terms of the loan, and could be willing to either accept deferred interest payments, or a lower rate of interest, so that the loan doesn't go bad."We expect marginal compression in NIM (5-10bps QoQ) during Q4FY12, as banks are almost through with the last leg of deposit re-pricing; tight liquidity environment has led to spike in wholesale deposit rates during the end of Q4FY12. However, we believe full impact of tight liquidity condition to be reflected in Q1FY13," said a research report by Kotak Securities.Meanwhile, the market is expecting contraction in loan and deposit growth. For the fortnight ended March 23, 2012; the non-food credit has expanded more than 16.80% year-on-year to Rs 45.30 lakh crore while deposits grew a little above 13% Y-o-Y. Sluggish deposit growth has led the the credit-deposit (CD) ratio to touch a record high at 78.1% in March. CD ratio is the proportion of loan-assets created by a bank from the deposits received."Loan growth for the sector has been stable from Dec-11 levels," said a report by CLSA India. "Most banks expect a marginal deterioration in margins. Fee growth could be slower due to slowdown in capex related lending. Some banks may see treasury gains from actual sale as well as write back of mark-to-market losses on investment, especially equity. We expect the NPL formation to be higher, but still manageable."Some of the top picks by different brokerages include ICICI Bank, HDFC Bank, Bank of Baroda and SBI.Saikat Das
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