The April-June is going to be the another bad quarter for PSU banks due to asset quality concerns but for private banks, it could be stable quarter, feels Nomura.
"We expect around 15 percent year-on-year profit after tax (PAT) growth for private banks with stable pre-provision operating profit (PPOP) growth. PSUs will likely have a tough quarter operationally with elevated asset quality stress along with pressure on net interest margins on account of base rate cuts and lower treasury profits Q-o-Q," the brokerage explained in its note.
Overall, the brokerage expects Q1FY16F to remain muted with no material recovery in asset quality. While overall impairment levels will moderate as there is no incremental restructuring, it expects slippage run-rate to mirror trends seen in 9MFY15.
From a PPOP perspective, base rate cuts will affect margins Q-o-Q and banks’ P&L will not be aided with treasury gains given the yield movement, Nomura said. Overall, the brokerage expects private banks/PSUs to see PPOP growth of around 20 percent/2 percent but PAT growth lower at 15 percent/(20) percent driven by higher credit costs.
It believes sector risk-reward is evenly placed with lumpy asset quality issued left to be recognised but other macro/growth indicators improving.
According to the report, focus will clearly be on impairments given that guidance indicated an improvement. For ICICI Bank, the brokerage expects slippages of Rs 2,300 crore, lower Q-o-Q but in line with the Q3FY15 trend and for Axis Bank, it expects slippages to inch to Rs 900 crore against Rs 600 crore, which would be on expected lines.
It does not see triggers for earnings revision (upward or downward) in Q1FY16F and it expects earnings growth to improve in FY17F.
HDFC Bank/Yes Bank will likely see strong growth momentum with stable asset quality. Kotak Bank’s profitability will likely see an impact from ING’s merger – Kotak is likely to accelerate NPA recognition and provisioning.
In case of PSUs, Nomura does not expect any relief for Punjab National Bank on asset quality and said even Bank of Baroda will likely see an increase in slippages although trends will remain better than peers.
As far as non-banking finance companies/housing finance companies are concerned, the brokerage expects robust profitability for HFCs as the wholesale funding environment remained favourable and bank rate cuts have lagged RBI rate cuts. However, rural financiers (MMFS) will face some lagged impact of unseasonal rains on asset quality and growth outcome will also be muted, it feels.
Nomura expects around 20 percent profit growth for HFCs against 12 percent for auto NBFCs.
Posted by Sunil Shankar Matkar