The five major private sector banks, including ICICI Bank, Axis Bank and HDFC Bank, posted a 25-34% year-on-year growth in earnings, driven by core performance and lower provisions for non-performing assets (NPA). Key ratios, such as net interest margin (NIM) and return on assets (ROA), also showed improvement.
Analysts, however, caution that potential worries around slowing loan growth and asset quality remain. Ratings agency Standard and Poor's (S&P) lowered its outlook on 11 major financial institutions over sovereign risks. An HSBC Global research report states that HDFC Bank's historical trajectory of 30%-plus earnings growth may slow to 23-24%, due to the weak macro-environment and slower credit cycle. An Emkay Global report factors in a lower growth for Axis Bank along with margin pressures.
During the fourth quarter, ICICI Bank's profits grew the fastest at 31% y-o-y to R1,902 crore. A Citigroup report states that ICICI Bank's profits were 8% ahead of expectations. HDFC Bank's profits grew strongly at 30.3% y-o-y to R1,453 crore. Among the mid-sized banks, YES Bank registered a 34% y-o-y growth in net profit to R272 crore. The net interest margins for most private banks remained stable during the quarter despite the higher cost of funds. Analysts said that the rise in the share of current account savings account (Casa) in the overall deposit portfolio helped support NIMs. For IndusInd Bank, NIMs were up four basis points to 27.3%, and ICICI Bank's NIMs inched up 26 bps to 3.01%. Analysts expect NIMs for private banks to remain at these levels in FY13 through smart re-pricing of loans and deposits.
The asset quality of private sector banks in the quarter showed an improvement, but the big private banks continued to add to their growing tally of restructured loans. ICICI Bank's net NPAs sequentially declined to 0.73% from 1.11%, but loan restructured book spiked by 39% q-o-q, leading to an overall restructured book worth R4,260 crore.
IndusInd Bank officials, however, said they are not seeing any adverse trends in restructured loans. For IndusInd Bank, net NPA levels fell from from 0.29 to 0.27. Bankers argue that banks' bad loan levels have peaked and the pipeline of accounts coming for restructuring will come down in subsequent quarters. Private banks had mixed fortunes in their advances book for the fourth quarter. While retail loans saw steady growth, banks saw slower growth on corporate loans as companies preferred to pare down on new project financing.
A Barclays report noted that HDFC Bank's loan mix continued to shift towards retail loans (now 54% of book, up from 51% in previous Q3). Bankers expect a 17% overall industry wide credit growth in the 2012-13. Leading private banks have been able to meet street expectations over earnings. But it remains to be seen whether the performance is sustained in the coming quarters as Basel-III norms increase the need for capital and a subdued economic growth keeps a lid on credit demand.