Banks margins to shrink but
loan growth, lower credit cost to aid PAT
Margins are expected to shrink 3-12 bps on quarter due to increase
in banks cost of funds, decline in credit to deposit ratio, and back-book
deposit re-pricing, according to analysts
Banks profitability in seen moderating in Q4 FY 24 to around 10
per cent y-o-y, on the back of muted NII (net interest income) growth and
further shrinking of margins.
Margins are expected to shrink 3-12 bps on quarter due to increase
in banks cost of funds, decline in credit to deposit ratio, and back-book
deposit re-pricing, according to analysts.
Deposit growth has picked-up to 13.5 per cent yoy due to
RBI s nudge on higher systemic LDR. However, such growth has come on the
back of high-cost retail and bulk deposits, which coupled with some
moderation in LDR and unsecured loan growth, could put pressure on margins
in Q4, Emkay Global Financial said in a note.
Sequentially, the profitability is seen improving to about 17 per
cent due to lower opex for state-owned banks, AIF relief for private sector
lenders, and treasury gains owing to softening gilt yields.
HDFC Bank will kickstart the Q4 earnings season for banks on April
20. ICICI Bank, Axis Bank, IndusInd Bank and RBL Bank are the
favourite among private banks.
Kotak Mahindra Bank is seen weighed down by management
transition in the near-to-medium term. For HDFC Bank, a sharp reduction in
LRD is seen weighing on margins, which coupled with higher opex could
off-set the positive impact from the sale of HDFC
Credila stake. Indian Bank, Punjab National Bank and State Bank of
India are the top picks among PSU banks.
Credit, NII growth
Pre-result updates suggest broad-based sequential traction in
credit, which has so far been strong, driven by services and retail
segment. Outlook on credit growth will be important as liquidity gets tighter,
and on RBI s action on unsecured retail loan and loan to NBFCs, Phillip Capital
said.
Provisional Q4 numbers reflect strong business momentum for
private banks with sequential loan growth of 3-5 per cent and deposit
growth of 5.7-6.7 per cent. Public banks sequential loan growth was
3-4 per cent whereas deposits grew 4-5 per cent. Overall, system loan growth is
seen at over 15-16 per cent y-o-y and 4 per cent q-o-q, and deposit growth at
5.3 per cent.
There has been some moderation in retail credit, especially credit
cards and personal loans, partly due to seasonal factors and the
regulatory increase in risk weights, Emkay Global said, adding that some
temperance is also seen in vehicle finance and gold loans.
NII is seen growing 4.4 per cent on year and 1.8-2.8 per cent
on quarter. Within this, private banks NII is seen up 7.2 per cent y-o-y and
3.2 per cent q-o-q whereas for PSU banks is seen 0.9 per cent higher y-o-y and
2.1 per cent q-o-q.
Asset quality
Led by contained slippages, accelerated write-offs and strong
provisioning buffers, gross NPA ratios of banks are seen moderating to around
2.0-2.7 per cent from 2.9 per cent in the previous quarter. The net
NPA ratio is seen declining to around 0.5 per cent, analysts said.
Banks are likely to witness yet another strong quarter in terms
of asset quality; however, we remain vigilant of any pockets of stress in the
unsecured portfolios. Slippages should remain under control and asset quality
improvement will continue, driven by healthy recoveries. Credit costs are
likely to remain at normalised level, Axis Securities said in a pre-earnings
note.
Phillip Capital expects credit cost to be at 40 bps in Q4
compared with 44 bps in Q3 and 1.1 per cent in the year ago
period, and Prabhudas Lilladher expects the gross slippage ratio to decline
9 bps q-o-q to 1.15 per cent, as large banks had witnessed increase in
agriculture slippages in Q3 FY24.
www.thehindubusinessline.com dt. 15.04.2024