Dolat Capital has come with its September`12 quarterly earning estimates for financial sector. According to the research firm banks’ asset quality would remain under stress particularly for state-owned banks.
We estimate our banking universe (15 banks, Deposit base 720USD bn) to post 9% YoY growth in net profit for Q2 FY13. During the quarter till 7th September’12, scheduled commercial banks’ (SCBs) deposits grew by 14.5% YoY (as compared to 17.7% during corresponding period previous year). SCBs’ credit book expanded by 16.6% as against 20.4% in corresponding period previous year. SCBs’ incremental credit-deposit ratio has been witnessing gradual drift since end- June’12; it decreased to 84.5% (from 87% since June’12) and incremental investment-deposit ratio expanded to 34% from 28%. On volume front, contraction in incremental C-D ratio and expansion in incremental I-D ratio would lead to contraction in margin on QoQ basis.
Also from interest rate perspective, banks’ core interest income would remain moderate. Due to downward revision of lending rates in selected sectors and sub-segments, margin would remain subdued. Also, due to lesser incremental credit-deposit ratio, total asset yield would taper down on sequential basis. On margin front, we expect Andhra Bank, BoI and PNB performance to be under pressure. Axis Bank, HDBK, IndusInd Bank and OBC would be relatively better placed on this front.
We expect banks’ core fee to be muted mainly due to lesser credit growth, drop in exports and overall subdued corporate activity. On third-party product distribution front, overall mobilization of insurance premium has been gradually drifting. Banks’ processing fee charges, trade finance income and third-party income to remain subdued. Aggressive banks with faster branch expansion and dedicated sales force would be able to grab market share from other banks. Private sector banks would record better performance on this front.
Banks’ asset quality would remain under stress particularly for state-owned banks. We do not expect any respite from loan restructuring in times to come. We factor in higher credit cost on sequential basis though on yearly basis, the credit cost might come down due to higher base effect (in Q2FY12, PSU banks recognized their impaired loan books on CBS platform). We expect some negative surprises on asset quality front particularly in case of state-owned banks. In FY13, SCBs’ credit book would expand at a pace of 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 the banks’ prudent lending policy, better agility and much more stricter norms. Subdued corporate activity reflecting into receding core industries growth and overall IIP numbers would continue to put pressure on the banks’ asset quality. Sustained revival in credit demand and improvement in corporate activity would signal future improvement in banks’ asset quality. In Q2FY13 financial performance, on core interest income level, Axis Bank, HDBK, ICBN, IndusInd Bank and OBC would be outperformers and on bottomline level, HDBK, ICBN, IndusInd Bank, OBC, and Syndicate Bank would be better off. At bottomline level, key laggards would be Andhra Bank, Canara Bank and PNB. We remain positive on the sector selectively; we prefer ICBN, IndusInd Bank, Karur Vysya Bank among private banks and Syndicate Bank among PSU banks.
|Banks||NII (Rs mn)||PAT (Rs mn)|
|Q2FY13E ||QoQ (%) ||YoY (%)||Q2FY13E ||QoQ (%) ||YoY (%)|
|City Union Bank||1,407||2||17||890||20.4||14.8|
|Karur Vysya Bank||2,584||1.8||19.4||1,335||-8.5||17.8|