High-yielding loans, lower provisions to boost bank nos

HDFC Bank will kick off the earnings season for big banks this Saturday and is likely to post nearly 20% growth in net profit for the quarter ended March 31. Rival ICICI Bank is expected to deliver the strongest profit growth, nearly 30%, among non-state banks, buoyed by strong credit growth and pristine asset quality, according to analysts tracking the sector. Axis Bank is projected to post a loss, due to a write-off of goodwill on the Citibank portfolio it acquired.

In the public sector pack, market leader State Bank of India could report a nearly 70% increase in net profit from a year earlier on the back of strong margins. Bank of Baroda and Canara Bank are likely to more than double their earnings.

“In the March quarter, we expect the earnings momentum to remain strong, led by continued robust credit offtake, steady elevated margins on the back of yield repricing offsetting higher cost of deposit, and steady slippages and resolutions of a few stressed assets leading to stable credit cost,” said Kajal Gandhi, vice-president at ICICI Securities. “PSU banks are seen delivering a continued strong earning trajectory,” Gandhi said, adding that management commentary on segments that drive loan growth, liability accretion and margin trajectory amid rising cost of funds would be keenly watched.

As per Motilal Oswal, the private bank universe is expected to report net profit growth of 23% YoY. It expects operating expenses to remain high due to continuous investments in business. Loan growth for the sector is estimated to be around 18%. The brokerage forecasts public sector banks to post an 84% expansion in net profit.

For the new fiscal year, analysts are waiting to see how banks will drive deposit growth which they may need to support an expected increase in credit demand.

Axis Securities expects banking sector to post a 17% rise in loans in the quarter ended March 31. “At a systemic level, consumer durables, personal loans, credit card outstanding have shown robust growth,” Axis Securities said in a note. “Banks that have so far reported their provisional numbers for the quarter have witnessed a pickup in deposit growth, led by term deposit growth outpacing CASA deposit growth. While most banks have so far been upbeat about sustaining their credit growth momentum, comments around deposit mobilisation to support healthy credit growth will be watched out for.”

Net interest margins during the quarter are expected to remain flattish due to hikes in the marginal cost of funds based lending rate (MCLR) and repricing of repo rate-linked loans. Management commentary on margin contraction as banks step into FY24 would be crucial.

“Overall, we have built in a 200-300 basis point reduction in loan growth in FY24,” said Emkay Global analyst Anand Dama. “Deposit growth (10% YoY) still lags credit growth, with banking liquidity slipping into the deficit zone, which has forced banks to raise deposit rates aggressively; and this should weigh on margins in the due course.”

In terms of asset quality, the March quarter should be another uneventful period with healthy recoveries and moderating slippages driving asset quality improvement. Concerns around slippages from the restructured pool seem to have ebbed. Credit costs seemed to have remained benign in the past quarter.