Banking Sector - Expected to give good results in Q4.

The banking sector is expected to return to normalcy in this result season if the analyst estimates are anything to go by. The top seven Indian banks are expected to grow their net profit by an average estimated 13% year-on-year (y-o-y) in March 2010 quarter. However, excluding Bank of India (BoI), the remaining six banks may record a net profit growth of 22%. It comes as a breather for bankers, who struggled to keep their growth rates afloat in December 2009 quarter.


One of the main reasons behind the turnaround is the revival in credit growth. As per the latest data released by the Reserve Bank of India (RBI), credit growth improved to 17% after plunging to 11% in December 2009. In the last quarter, experts were apprehensive of the banking sector’s ability to press the lending accelerators. The revival in credit growth puts to rest those apprehensions for the time being. What’s even better is that the gap between deposit and credit growths has narrowed down. The deposit growth stands at 17% as of now and is on par with credit growth. However, deposit growth was more than credit growth by roughly 8%, when the credit growth touched its low in December 2009. A higher growth in advances and a lesser growth in deposit will give a boost to net interest income (NII), which is the difference between interest earned and interest expense.

Backed by improved credit demand, the analysts expect even net interest margin (NIM) to improve, which is a measure of spread. Throughout the March quarter, bond yields remained marginally higher than the previous quarter. It was expected that banks with a higher share of available-for-sale securities in their investment portfolios would report mark-to-market (MTM) losses. However, bond yields cooled down at the end of the quarter.

Better scheduling of the government borrowing programme saved the day for public sector banks, as the 10-year yields on the reporting day stood at 7.83% compared to a consensus of over 8%, wrote ICICIdirect.com in its report. The only negative from the results is that a few banks may have to provide more for non-performing loans (NPLs), as the moratorium for restructured loan comes to an end. However, banks have stepped up provisions over the past few quarters and, therefore, the impact is likely to be marginal, if at all.

HDFC Bank is expected to lead the pack with an estimated 31% growth. Among state-owned banks, Punjab National Bank (PNB) with an expected 26% growth seems to be the lead runner. There seems to be no solace for BoI investors. Rising NPLs had crippled its performance in the past two quarters. The March 2010 quarter is expected to be no different as BoI (Bank of India) is expected to report a 39% drop in its profits.


Source: Economictimes.

Thanks,
Nimesh.