1. Bumpy road to recovery

Bumpy road to recovery

Bank earnings grew sharply compared to the loss in the previous year (AQR-led) as provisions declined 25% y-o-y.

By: | Published: June 10, 2017 4:30 AM

Bank earnings grew sharply compared to the loss in the previous year (AQR-led) as provisions declined 25% y-o-y. Even as slippages were higher q-o-q, impaired loans declined 70 bps q-o-q to 10.1% (stable on absolute basis), due to improved loan growth and higher write-offs. Revenue growth was decent at 13% y-o-y, with NIM higher for most public banks and continued support from treasury gains. Operational performance of most NBFCs improved significantly q-o-q, likely due to a demonetisation-weakened base. High valuations make us cautious; Chola and HDFC seem to be well placed. Post recent price movements, we upgrade Ujjivan to BUY and PNB to ADD; we downgrade DCB to REDUCE and KVB to ADD.

Earnings recover off a low base as provisions decline

Banks reported earnings growth, compared to a loss in Q4FY17 (driven by AQR) on the back of 13% y-o-y revenue growth and 25% y-o-y decline in provisions. Revenue growth was led by NII growth which grew 15% y-o-y as loan growth picked up to 8% y-o-y and NIM recovered from their lows. Treasury contribution to PBT was meaningful at 50%. Public banks witnessed a 17% y-o-y NII growth, 35% y-o-y PPoP growth and moved back to profits. Private banks reported 16% y-o-y NII growth, 3% y-o-y PpoP growth and 5% y-o-y growth in earnings.

Impaired loans decline but slippages higher

Impaired loans were stable q-o-q while the ratio declined 70 bps q-o-q to 10.1% with gross NPLs fell 30 bps q-o-q to 7.8%, however restructured loans declined 40 bps to 2.3%. Impaired loans of public banks fell 100 bps to 12.5% while those of private banks fell 10 bps at 5.4% of loans. The provision adjusted NPLs declined to 6.5% from 7.3% levels seen in the previous few quarters.

NBFCs: Performance improves

Coming out of demonetisation, operating performance of NBFCs improved in Q4FY17. The improvement was the highest for NBFCs in rural India that were affected by a severe cash crunch during the previous few months. We have a cautious view on the NBFC sector given high valuations, risk to any disruption due to GST implementation, vulnerability in the MFI space and competition in the housing finance.

 

  1. No Comments.

Go to Top