Banks to post good earnings growth in Q2 | The Financial Express

Banks to post good earnings growth in Q2

Importantly, the growth in advances, during the September quarter, has been broad-based and not as skewed towards retail loans as has been the case for a couple of years now.

Banks to post good earnings growth in Q2
“We are likely to see healthy performance from all banks, unlike the past few quarters where the recovery was strongest for the large private banks,” analysts at Kotak Institutional Equities (KIE) wrote recently.

Earnings growth for banks in Q2FY23 will be good driven by a robust loan growth and an expansion in margins. Also, much like in recent quarters, profits are expected to get a boost from a sharp drop in loan loss provisions.

Asset quality should improve across lenders, especially on a year-on-year basis. The better asset quality would result from banks being able to recover dues from smaller units whose loans underwent restructuring post Covid-19.

“We are likely to see healthy performance from all banks, unlike the past few quarters where the recovery was strongest for the large private banks,” analysts at Kotak Institutional Equities (KIE) wrote recently.

To be sure, bond yields did rise somewhat in September after staying stable in July and August. However, helpfully for banks, unlike in the previous quarter, overall, bond yields have been marginally lower than in Q1FY23. Consequently, treasury losses would be minimal.

Also Read: Ujjivan Small Finance Bank records 44pc jump in loan book

Importantly, the growth in advances, during the September quarter, has been broad-based and not as skewed towards retail loans as has been the case for a couple of years now.

Net interest margins (NIMs) would be helped by the fact that while loan rates have gone up sharply, the pace of the increase in interest rates on deposits has been slower.

With retail and MSME loans linked to the external benchmark-based linked rate (EBLR), and the Reserve Bank of India (RBI) having raised the policy rate by 190 bps since May, transmission has been swift. As the cost of liabilities goes up, as is already happening, margins could fall somewhat.

Analysts also worry that a slowing of demand might prompt lenders to undercut on loan rates.

In general, the lending rate on fresh loans is trending upwards while the rate on the outstanding loan book, too, is moving up.

The spread between the yields on the outstanding loan book and the average term deposit rate has sustained at a healthy level, especially for private banks.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos
10 Photos
Realme 10 Pro Plus launched in India: The 10-point rough cut
9 Photos
AAP sweeps away 15 year BJP reign in MCD election – Photos from celebrations
14 Photos
G20 Presidency: Rare Photos from all-party meet, chaired by PM Modi