Banking sector results preview for Q4FY12: Angel Broking

Angel Broking has come with its March quarterly earning estimates for banking sector.

Banking stocks after underperforming the Sensex for three consecutive quarters (1QFY2012-3QFY2012) were able to outperform the Sensex handsomely by 15.8% (absolute returns of 28.4%) in 4QFY2012 on account of lower valuations and improving economic outlook. The rally in banking stocks was led by mid cap PSU banks, within which Dena Bank gave the highest sequential returns of 84.3%, followed by UCO Bank and Syndicate Bank, which gave returns of 73.8% and 62.4%, respectively. Inflation levels moderated significantly in 4QFY2012 (~250bp), leading to increased anticipation of rate cuts, which fueled the rally in banking stocks. Throughout 4QFY2012, the RBI continued with open market operations (OMOs) and, along with cumulative 125bp cut in cash reserve ratio (CRR), infused liquidity worth ~`2lakh cr in the financial system, which allowed banks to manage the tight liquidity situation (owing to slowing deposit growth and dollar sales by the RBI). Considering the significant moderation in inflation levels over 4QFY2012, we expect the RBI to commence with repo rate cuts in the next few months, which, in our view, should help banking stocks in maintaining their positive performance in FY2013 as well.

Deposit growth decelerates in 4QFY2012: Credit growth for the banking sector has been on a declining trend since the beginning of FY2011. Credit growth as of March 9, 2012, stood weak at 16.3% yoy, which can primarily be attributed to the slowing economy along with a high base effect (23.2% yoy growth as of March 11, 2011). Interest rates have remained elevated for quite some time now (base rate for SBI at 10% since August 2011), leading to continued tapering off in the credit appetite of the economy. Incremental credit in FY2012 YTD is lower by 10.3% yoy compared to FY2011 YTD; deposit accretion, which had picked up post successive deposit rate hikes, decelerated quite sharply during 4QFY2012 to 13.9% yoy (as of March 9, 2012) compared to 16.9% yoy as of December 30, 2011. Incremental FY2012 YTD deposits as of March 9, 2012, are only marginally higher by 0.2% yoy compared to FY2011 YTD. 

Slowing deposit growth coupled with the RBI's intervention in the forex market to support the depreciating rupee has led to liquidity pressures exacerbating since the starting of CY2012 (avg. borrowings of ~`1.4lakh cr compared to ~`88,000cr in 3QFY2012). While the RBI has infused ~`2lakh cr in the system through CRR cuts and OMOs, liquidity pressure has remained intact (`1.25lakh cr as of March 30, 2012) and is expected to ease only post the commencement of FY2013.

Company	Operating Income		Net Profit
	4QFY12E	% chg	4QFY12E	% chg
Axis Bank	3,838	21.8	1,159	13.6
Federal Bank	694	17.9	227	32.2
HDFC Bank	4,727	15.4	1,451	30.2
ICICI Bank	4,875	17.5	1,719	18.3
SIB	350	24.1	111	35.5
YES Bank	684	27.9	267	31.5
Allahabad Bank	1,857	14.6	565	119.3
Andhra Bank	1,282	10.5	328	5
BOB	3,761	9.1	1,297	0.2
BOI	3,066	-2.1	704	42.6
Bank of Maharashtra	821	12.1	110	59.2
Canara Bank	2,880	24.1	981	9.1
Central Bank	1,623	-16.8	127	-4
Corporation Bank	1,372	9.6	416	20.4
Dena Bank	738	13.2	209	32.8
IDBI	1,786	0.1	389	-24.7
IndusInd Bank	1,554	12.4	525	19.5
IOB	1,706	6.6	252	-41.9
JK Bank	591	10.4	207	49.3
OBC	1,531	16.6	418	25.3
PNB	4,772	14.3	1,321	10
SBI	15,948	23.9	3,549	NA
Syndicate Bank	1,651	16.6	329	13.8
UCO Bank	1,370	20.6	342	51.2
Union Bank	2,454	5.9	600	0.4
United Bank	886	11.6	206	44
Vijaya Bank	630	1.5	129	138.5
HDFC	1,867	12.8	1,267	11
LIC Housing Fin	489	-5.7	279	-11.2

(Rs cr)

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