Private banks perform better than PSBs in Q4

The results announced by banks for the fourth quarter ended March 2011 showed mixed trends. Most private sector banks did well on the loan growth and margin front, while the public sector banks (PSBs) have suffered on account of higher provisioning and slippages.

The net profit growth at private sector lenders was a robust 40% buoyed by strong loan growth and lower loan loss provisioning. Overall, profit growth at PSBs was flat, skewed due to the shocking 99% slump in profits at State Bank of India (SBI) due to higher slippages, provisioning and pension liabilities. However, excluding SBI, the overall profit growth for the PSB universe was about 23%. But, most PSBs disappointed on the NIM front due to rising cost of funds and higher staff costs, whereas private sector banks posted better NIMs. Margins contracted sequentially at most PSBs as they were not able to pass on the sharp increase in cost of funds. Most private sector banks managed to strengthen their asset quality, while asset quality deteriorated at PSBs.

Treasury profits were flat and fee income growth was negative for PSBs. While, the private sector counterparts reported a steep fall in treasury profits but better fee income growth.

Going ahead analyst believe banks will continue to face macro headwinds due to rising interest rates and high inflation, which will result in few more rounds of rate hikes, impacting margins. Analysts are expect NIMs to contract 20-40 basis points y-o-y in 2011-12. Also, performance could also be affected due to stringent monetary measures and provisioning pressures by RBI, analysts say.

Analysts believe the year 2011-12 to be more challenging as growth will taper off and margins will come under under pressure.

?We expect loan growth to moderate and build in 18% growth for FY12. RBI?s primary focus on anchoring inflation expectation over growth may result in some risk to our growth estimates,? states Kotak Institutional Equities in a recent report.

Most analysts prefer private sector banks over the public sector peers as the performance gap between the two has started to widen. ?Going forward, for PSU banks, we expect moderation in NIM, higher slippages and higher provisioning for NPAs. This coupled with capital raising plans will keep return ratios and valuations under check,? states a recent Enam report. Most analysts are bullish on ICICI Bank in the private banking space, while on Punjab National Bank (PNB) in the PSB space.