'Banking sector may see tough days ahead'

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New Delhi, August 15:: After taking a hit on their bottomlines in the first quarter of this fiscal, the Indian banks are likely to remain in tough terrains in the face of the tightening macro-economic environment, analysts say.

Bottomlines of banks in the first quarter of financial year 2009 were hit by higher than expected mark-to-market (MTM) losses and lower treasury incomes, as per an earnings review of banking sector by domestic brokerage firm Sharekhan.

"Most of the banks under our coverage witnessed margin pressures during the quarter, in line with the recent rate hikes announced by the RBI. Further, a weaker treasury performance on account of the higher bond yields, the downturn in the equity markets and the high base of the last year added to the woes of banks," the Sharekhan report said.

However, the banks themselves are putting a brace face and dismiss the talks of any slowdown in the sector.

Disagreeing to the view that there is a slowdown in the banking space, Indian Bank Chairman and managing director M S Sundara Rajan said, "There is no slowdown at all. Indian Bank had a credit growth of 4,200 crore in the first quarter this year as against Rs 800 crore last year. There is high demand from every industry including power, telecom, infrastructure, cement, sugar or composite sugar mills."

The highlight of the quarter were the MTM provisions, which significantly affected the earnings of the banks. The quarter gone by saw a significant spike in bond yields, resulting in high MTM provisions on banks' bond portfolios, the report said.