Banks are likely to report an improvement in profitability during the December quarter, backed by healthy credit growth, trading gains and lower slippages, analysts say.
Banks are likely to report an improvement in profitability during the December quarter, backed by healthy credit growth, trading gains and lower slippages, analysts say. Pre-provisioning operating profit (PPOP) may rise 13% year-on-year (y-o-y) and net interest income (NII) is expected to increase 15% y-o-y, Kotak Institutional Equities (KIE) said in a recent report.
“The recent RBI (Reserve Bank of India) report reconfirms our hypothesis that the impaired loan ratio for corporate banks would continue to decline while retail banks would see stress levels rising but only gradually,” KIE analysts wrote in the report. “Resolution through the IBC (Insolvency and Bankruptcy Code) framework has slowed this quarter but progress continues outside through settlements/upgradation/write-offs, etc.” PSBs may look to use their operating profit growth as well as mark-to-market reversals to improve their provision coverage ratio. The government’s latest round of capital infusion could lead to aggressive provisioning to bring down the net NPA ratios of a few banks to 6% or below in order for them to exit the prompt corrective action framework. KIE expects the recognition of companies under the IL&FS group as NPAs to begin across banks this quarter, with the key impact being on IndusInd Bank, which declares its numbers on Wednesday.
While the capital infusion into PSBs may help boost their net NPA and capital ratios, profits may still be some distance away, experts say. In a report circulated on Tuesday, ratings agency Icra said losses before tax for PSBs may fall in H2FY19 compared to H1FY19, primarily supported by reversal of MTM losses on their bond portfolios. “…but overall losses (are expected) to remain elevated at `67,600-85,200 crore for FY19 which, in turn, will depend on credit provisioning levels against NPAs. Hence, a large portion of the budgeted capital infusion of `1.06 lakh crore by the government for FY19 will be offset against their losses,” it observed.