MOST expects banking cos to post 19% PAT growth in Q2FY13

Motilal Oswal has come with its September quarterly earning estimates for Financials sector. According to the research firm, banking coverage universe is expected to report healthy PAT growth of 19% YoY, largely driven by 23% YoY profit growth from private sector banks.

Motilal Oswal Q2FY13 result preview for Financials sector: Challenges for the Financials sector continued in 2QFY13 as well, led by moderation in growth and sustained pressure on asset quality. However, the government's concrete steps towards reforms have brought in a ray of hope. Banks - aggregate PAT growth to remain healthy For 2QFY13, we expect our banking coverage universe to report healthy PAT growth of 19% YoY (~15% YoY ex-SBIN), largely driven by 23% YoY profit growth from private sector banks. PAT of state-owned banks is likely to grow 17% YoY (9% YoY ex-SBIN), but decline 4% QoQ (led by higher provisions, muted fees and higher tax rate in some cases). A lean business quarter; CD ratio falls; higher monies parked in government securities For the fortnight ended 21 September 2012, loans grew 16.4% YoY and deposits grew 13.7% YoY. On a sequential basis, while loans were flat, deposits increased marginally. Higher funds are flowing into G-Secs, as a result of which the incremental ID ratio is 100%+ whereas the overall CD ratio has declined from 76.4% to 75.8%. As in FY12, in FY13 too, working capital would be a key driver for corporate loan growth. 2-3 years of continued moderation in the capex cycle will have a lag impact on other loan segments (Services and Retail). We expect loan growth for the system to be 15-16% for FY13. While SA deposit growth is likely to improve, it is unlikely to keep pace with overall deposit growth. Further, CA deposits in the system continue to decline. This would pressurize CASA ratio. Benefits of fall in deposit rates to be compensated by fall in yields on assets - NIM to remain stable QTD 3M, 6M and 12M bulk deposit rates have declined by 60bp each, whereas on YTD basis the decline is much sharper at 225bp, 180bp and 130bp respectively the benefits of which will percolate in the form of lower cost of funds. However, this would be compensated by (a) fall in yields on loans, as banks have reduced spreads on loans in certain cases and have reduced base rate/PLR in May 2012, (b) continued pressure on CASA ratio, and (c) higher flow of money into low yielding investments due to muted loan growth. We expect margins to be flattish/ improve marginally QoQ. Specific banks (viz. Bank of India), wherein margins declined significantly in 1QFY13 due to higher reversal of interest income (on the back of restructuring / slippages) may see some relief. Addition of stress on balance sheet to continue Considering the challenging macro environment, we expect slippages to remain elevated (especially for state-owned banks), led by stress in mid-size corporate and SME segments. Retail focused banks are likely to be better placed (most private sector banks). However, unlike the past, retail delinquency has started increasing. Hence, NPAs are expected to rise in this segment, as well. Increased focus on balance sheet management by banks may lead to improvement in recoveries and upgradations, which would provide cushion to asset quality.

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