Earnings are expected to be aided by healthy business growth and benign credit costs, but margin pressure stoked by deposit repricing and elevated operating expenses may affect the overall growth trajectory.
“We expect banks under coverage to report nearly 60% on-year earnings growth led by 35% year-on-year operating profit growth and 20% YoY decline in provisions,” said MB Mahesh, executive director at Kotak Securities. “We expect solid net interest income growth at 22% on the back of 16% YoY loan growth. We don’t expect discussions on asset quality to emerge this quarter as well, as the portfolio appears to be holding up well across banks and product portfolios.”
A note by brokerage house Motilal Oswal pegs earnings to grow around 54% on-year, where private banks could post earnings growth of 32% while public sector banks could see 96% growth.
Among public sector banks State Bank of India, is expected to more than double its profits to ₹14,862 crore on-year as per an analysis by ICICI Securities.
On the other hand, HDFC Bank, fresh out of its merger with parent HDFC Corp, could post 20% on-year profit growth at ₹10,995 crore.
A report by Motilal Oswal pegs that Bank of Baroda could see profits grow more than 91% to ₹4,144 crore while ICICI Bank is expected to once again post stellar numbers with profit growth of nearly 38% at ₹9,503 crore.
“The discussion is more likely to be centred around the growth of advances and deposits and the pace of net interest margin (NIM) compression,” said Jai Prakash Mundhra of ICICI Securities. “We expect strong results from IndusInd and Federal Bank and soft results from Bandhan and RBL. For SBI, we estimate a sequential rise in gross slippages led by agriculture and decline in return on assets though still healthy at 1.1%.”
Analysts are also building a margin compression of up to 20 basis points sequentially for most lenders as re-pricing of deposits upwards is likely to result in this weakness. Most banks have stepped up lending in some of the higher-yielding portfolios but analysts say it will not be sufficient. Banks are also expected to give a negative outlook on near-term NIM.
“As repo rate hikes have been paused, the deposit cost increase is catching up,” said Gaurav Jani, analyst with Prabhudas Lilladher. “While the yields on assets are expected to improve by 23 basis points sequentially, cost of funds could rise by 34 bps which is why system-level NIM is expected to fall by 8bps quarter-on-quarter.”
