Led by treasury income, banks are expected to post relatively stronger profits in the third quarter with public sector banks likely to outperform their private sector peers. “We expect net profits of banks to grow 28% y-o-y mainly due to a higher contribution of treasury income. We expect public banks to report strong earnings growth, 40% y-o-y, and private banks to report 18% y-o-y earnings growth,” Kotak Institutional Equities wrote in a recent report.
“We expect another strong quarter at private banks — profit after tax (PAT) growth of 18% year-over-year (y-o-y), helped by continued market share gains,” Morgan Stanley wrote, adding public sector banks will likely see a muted core operating profit growth at 10% y-o-y on weak loan growth and elevated credit costs.
A low credit growth is expected to pull down growth in net interest income to 10% year-on-year for public sector banks. However, private banks could see a healthy NII growth of 20%, according to Motilal Oswal. Weak demand environment and unfavorable base will result in moderate loan/deposits growth of 12-13% y-o-y, analysts point out.
Net interest margins (NIM) are expected to see marginal rise for most banks with banks having exposure to bulk funding set to gain more. An improved liquidity situation and a fall in short-term rates, including bulk deposits, will boost net interest margins of banks. Banks that rely more on bulk deposits will gain more, said analysts. Rates on certificates of deposits and other bulk deposits have eased 20 basis points in the October-December period.
The stocks of stressed assets of banks are expected to rise with restructured loans rising sharply given that the regulatory forbearance on classifying restructured accounts will end in April. According to Morgan Stanley report, ICICI Bank could see higher restructuring.
Slippages are also expected to remain high for the quarter-ended December. “We expect fresh impairments to remain broadly similar to those in Q2 FY15 with a large share of slippages coming from the restructured-loan portfolio,” said Kotak Securities report.