The combined profits of 18 private sector banks fell by about 15% year-on-year to Rs 9,967.08 crore in the three months to June from Rs 11,771.67 crore in Q1FY18. Most large private sector banks saw a sequential drop in their CASA ratios during the quarter; however, some of the southern banks were gainers. While HDFC Bank lost 180 basis points, ICICI Bank lost 120 basis points. Axis Bank lost 700 basis points sequentially. The fall in the aggregate profits was primarily due to a loss posted by ICICI Bank which reported a quarterly loss for the first time since 2001 because it needed to make high provisions for bad loans. However, analysts believe that the bank’s fundamentals suggest a gradual recovery is underway.
“There were no new negative surprises under the new management and like-to-like impairment ratios declined 6% quarter-on quarter,” they wrote. Moreover, profits for Axis Bank saw a y-o-y drop of close to 50% on higher provisions.” The decline in gross NPLs by 5% q-o-q on an absolute basis or 25 bps q-o-q to 6.5% gives some comfort on the direction of NPLs from here,” analysts wrote.
They added that while the slippages were higher than expected , upgradations and write-offs would still remain higher than slippages, giving comfort that the decline in NPLs looks like a strong outcome. Provisions for bad loans continued to weigh on the Q1FY19 profits of private banks; they jumped 62% y-o-y to Rs 14, 305.97 crore in Q1FY19 against 8,898.95 crore in Q1FY18. Nonetheless, most banks such as HDFC Bank, IndusInd Bank and RBL Bank saw a corporate loan growth of over 20% over the June 2017 quarter. However, ICICI Bank and Axis Bank saw a corporate loan growth of 4.9% and 6%, respectively.
Analysts at Edelweiss Securities wrote that the loan growth momentum at Kotak Mahindra Bank was impressive. “The momentum sustained — up 24% — across segments. This, along with sustained NIM and according to the management at 4.3%, it has bottomed out,” they observed. The growth in the net interest income at KMB was a good 15% and the management has guided for a 20% loan growth together with a gain in market share. HDFC Bank reported an 18% y-o-y increase in earnings on the back of a 15% y-o-y growth in net interest income and muted rise in credit costs at 5% y-o-y in Q1FY19.
Analysts at Kotak Institutional Equities wrote that the quarter showed the bank has adequate levers to generate healthy operating profit and earnings growth. “However, the quality has been a bit disappointing as the bank had to significantly slow down operating expenses to offset the NIM pressure,” they said. The expansion in NIM, not adjusted for capital infusion, is likely to remain in the short term for a few reasons, they pointed out.