The July-September quarter numbers for the banking sector are likely to show a mixed trend.
Most brokerages believe that the PSU banks may report subdued sets of numbers whereas private players may show stable growth.
"Performance of PSU banks is likely to be soft and volatile, but private banks will continue to be on a stable footing," said brokerage firm Edelweiss Securities.
The brokerage expects a sustained risk aversion, across-the-board growth moderation, higher credit cost and one-time DTA (Deferred Tax Asset) mark-down to adversely impact Q2FY20 earnings.
While the credit cost is expected to be elevated, brokerages are of the view that the recovery trend has been slower and no major resolution crystallised during the quarter.
Besides, the risk of increased stress pool has grown, thanks to recent defaults reported by some companies.
"As the quarter was characterised by rating downgrades for several entities and evolving adverse developments in a few corporate groups, all eyes will be on incremental stress pool, recognition and provisioning," said Edelweiss Securities.
On the other hand, brokerage Prabhudas Lilladher thinks the focus will remain on key large banks with monitorable parameters like loan growth especially retail, CASA deposits growth, slippages in retail, SME and concentrated large stressed corporate groups and guidance on usage of the tax rate cut.
The brokerage expects a 15 percent year-on-year (YoY) loan growth for private banks - led by retail loan growth - which is higher than the industry.
"Loan growth has been coming off for the sector and we continue to expect key large banks still doing better than industry but slower than earlier," said the brokerage.
Kotak Securities also believes that the banks will show volatile earnings.
However, the brokerage expects operating profit growth should show stable trends. Moreover, SME and agriculture portfolios are likely to show marginally better trends than in Q1FY20, Kotak Securities said.
"Among banks, we maintain our positive outlook on corporate banks (ICICI Bank and SBI) given their inexpensive valuations and visibility of steady progress towards RoE normalization in FY2020/21. We expect Yes Bank to report yet another challenging quarter while there is likely to be a lot of focus on asset quality for IndusInd Bank and RBL Bank," Kotak Securities said.
"Loan growth has slowed to about 12 percent YoY which would put pressure on revenue growth and we expect the decelerating trends to be more visible in retail-oriented loan books like DCB Bank, HDFC Bank and IndusInd Bank," the brokerage added.
Kotak expects gross and net NPLs to show an improvement on the back of lower slippages and a few resolutions in the power sector, mostly outside the IBC process.
For retail loan dominated banks, trends on auto and unsecured loans would be key portfolios to monitor, Kotak Securities said.
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