Mumbai: Banks will report a moderate growth of around 10% in the earnings in the second quarter due to higher provisioning by state-run banks and slowdown in credit growth, analysts say.
However, in spite of the repeated rate hikes, the lenders who will start reporting their numbers for the September quarter from this week will not have a slip in margins.
As the public sector banks complete the transition to a system-based non-performing assets recognition, the additional provisioning will hurt their profits, they say.
“State-owned banks will report higher delinquencies as they will likely complete their stringent NPL (non-performing loans) recognition platform in the reporting quarter (especially for small-ticket loans), whereas we find limited concern for private banks on this count,” Kotak Institutional Equities says in a note.
The report says it expects earnings to grow 10% for the overall system, with PSU banks showing a 3% growth and smaller private banks a higher growth, to the tune of 27%.
Analysts at the brokerage Sharekhan peg the earnings growth at 10.6% for the system, pulled down by rising interest rates, slowing credit expansion and growing concerns over asset quality.
“In Q2, the slower credit growth, increase in the NPA provisions and the marked-to-market provisions on investment book are expected to adversely affect the growth in earnings,” it says.
The Sharekhan report notes that the slowdown in credit offtake will hurt the net interest income of banks, as it will grow by only 2.9% on a sequential basis.
The chairman of the country’s largest lender, State Bank of India, Pratip Chaudhuri had last week said credit grew by a muted 4.5% for the system in the second quarter, while for SBI, it stood at 5%.
The Reserve Bank, which has hiked key rates a record 12 times in the last 20 months to tame inflation, has set a credit growth target of 18%.
With respect to net interest margins (NIMs), the analysts feel banks will not be hurt.
“We should see limited pressure on margins, as banks have taken aggressive steps to pass on the rate hikes to customers in the past few quarters, while hikes in retail deposit rates have been taken only in select buckets and wholesale rates have been stable,” notes the Kotak report.
Non-interest or fee-based income will be lower, while volatility in the markets will hurt profits, as realisation from investments is low and provisioning has increased, analysts feel.