While fresh slippages declined to 2.3% levels in the three months to March, 2012, from 2.5% in the December 2011 quarter, Kotak Institutional Equities (KIE) believes that slippage could be around 2.4% levels between 2012-2014. The estimate is reasonably conservative primarily to factor in lumpy exposures, the brokerage notes, adding that it is building slippages at 2.4% levels for public sector banks (PSBs), broadly in line with FY12 levels, while slippages for private banks could increase to 1.9% levels from 1.2% levels expected in FY12.
According to a Crisil estimate, the value of loans likely to be restructured by banks over 2011-12 and 2012-13 is nearly R2 lakh crore. The rating agency believes restructured loans will account for 3.5% of the total advances as of March 2013. While the Reserve Bank of India (RBI) believes that typically only about 15% of loans recast turn into non-performing assets, the absolute amounts are growing, say analysts. In the March 2012 quarter, State Bank of India?s restructured loans have more than doubled to R5,134 crore, on the back of a R8,000 crore recast in the December, 2011, quarter. At Punjab National Bank, the number was a shocking R8,000 crore for the March, 2012, quarter. State Electricity Boards are among the biggest entities in trouble which is why the public sector banks are more stressed than their private sector peers.
?Banks with large retail portfolio are unlikely to see serious deterioration but we expect them to increase from current low levels as growth is steadily slowing and real income levels are showing signs of stagnation,? KIE notes. The brokerage expects loan-loss provisions at 120 basis points for the period 2012-14, from 100 basis points currently, as it has factored in higher-than-normal slippage trends and it believes restructuring would continue. It has also taken into account the fact that dynamic provisions will come into effect. ?We broadly expect coverage ratio to remain stable if dynamic provisions are implemented at the earliest,? the brokerage observed.
Meanwhile, KIE estimates the compounded annual growth rate of earnings for banks could be in the region of an estimated 12% between 2012 and 2014. ?We broadly expect earnings growth to remain subdued at a 12% for FY2012-14E and expect private banks to show sharper earnings slowdown as credit costs starts to rise, especially on infrastructure loans,? the brokerage observes. On the other hand, it believes, public banks should be able to deliver 11% earnings growth.
KIE expects pre-provisioning operating profit (PPoP) to increase at a compounded annual growth rate of 13% during the period with public banks at 11% and private banks at 19%. The brokerage notes that revenue growth would remain subdued at a cagr of 14% with public sector banks growing at a cagr of 12% and private banks at 18%. ? Operating costs have normalised, especially post the retirement benefit payments made by public banks in 2010-11 though 2012-13 would see public banks reopening the discussion for the next round of wage settlement,? it points out.
