For Q3, private banks are expected to report marginal profit growth of 3 percent YoY and PSU banks may return to profit, global investment firm CLSA said.
The research house believes slippage should be manageable with the gross non-performing loans (NPL) ratio moderating to 9 percent of loans and healthy NII growth of 14 percent YoY.
It feels most of the slippage should arise from non-NPL stressed loans and few may see a reduced exposure to IL&FS in Q3, although most may see this slip in Q4.
Banks are also expecting their asset quality review reports over Q3-Q4FY19.
According to CLSA, provisioning during Q3 could make earnings volatile as select banks are looking to either improve provision coverage for NPLs towards 65-70 percent or may build provisions towards exposure to IL&FS (like IndusInd Bank and Yes Bank).
The research house said banks will benefit from write-back of MTM losses on G-sec books as yields corrected by 60bps during Q3 to near-March 2018 levels. "PSU banks will be the biggest beneficiaries (as G-sec books are more leveraged) and some banks may utilise this to build provisions based on management discretion."
The global investment firm believes corporate lenders like ICICI Bank, Axis Bank and SBI should deliver better quality results in terms of slippage and core operating performance.
Earnings for smaller private banks like IndusInd Bank and Yes Bank may be impacted by provisioning for stressed loans and slower growth in corporate banking fees, according to the brokerage.
On the NBFC segment front, CLSA said earnings may also be volatile as increased levels of securitisation can lead to upfront profit recognition (this may not repeat).
It believes HDFC should see steady growth in core profit, but its net profit is down as its base includes profit from the sale of its stake in HDFC Life Insurance. "Its YoY numbers will also be restated for the transition to IndAS."
Among NLFs, revenue traction for companies operating in capital market businesses (insurance, mutual funds and brokerage) will show moderation, it said, adding ICICI Lombard should outperform peers. It remains its top-pick across NLFs.Disclaimer
: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.