With beginning of the so-called slack season (April-September), banks are not expected to spring any fresh surprise in the April-June quarter earnings. If not as dry as dust, the first quarter of FY14 will be watched for certain crucial factors like credit growth, net interest income (NII or the difference between interest earned and paid out), provisions and of course, asset quality.
The fine line between public sector and private sector lenders will continue to draw the growth trajectory of individual banks. As usual private sector players are likely to outpace state-owned banks in terms of profitability. Overall, the banking industry may see marginal contraction in their net interest margins due to slower pace of loan off-take.
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"Credit growth remains very low," a banking analyst from a large domestic brokerage told moneycontrol.com.
"Banks cannot reduce their deposit rates. Hence, the average net interest margin of the industry could come off slightly. However, banks are likely to report good treasury gains adding to their other income. This will help seting off higher provisions on account of restructured loans," he said.
The credit growth, according to a report by Kotak Securities, has moderated further to 13.6 percent year-on-year as on June 14, 2013 as compared to 14-15 percent range reported during four previous fortnights.
"Deposit mobilization has remained stable at 13.7 percent, vis-à-vis the previous fortnight with not much change in the C/D ratio. We are of the view that unless deposit mobilization picks-up, monetary transmission will continue to get delayed. PSU banks would continue to disappoint on the asset quality front while private banks are likely to report higher delinquencies albeit on low base," said the report.
During Q1FY14, net income for banks under our coverage is expected to remain flat with private banks likely to grow faster at 23.0% YoY, while PSU banks are likely to report 13.0% YoY decline, it said.
"Lackluster demand from corporate segment to keep credit growth under check; however banks with higher international advances share (BoB, BoI, ICICI Bank and SBI) may report growth due to INR depreciation. NIM to remain under pressure due to cut in spreads over base rates and higher growth in secured retail segments," said a note by Axis Capital.
Since last one year Bank Nifty – the broader index for bank stocks, increased more than 8 percent compared with 11 percent rise in the 50-share Nifty.