RBI’s rate hike to hit banks’ Q4 earnings

RBI’s rate hike to hit banks’ Q4 earnings
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First Published: Mon, Apr 09 2007. 12 03 AM IST
Updated: Mon, Apr 09 2007. 12 03 AM IST
New Delhi/Mumbai: With the results season set to kick-off within seven days, brokerage firms expect the Reserve Bank’s efforts to squeeze out excess liquidity to impact quarterly earnings of banks and the growth rate.
“We believe the business environment is getting tougher for banks. Margins are under pressure with deposit costs rising by more than 100 bps in the current quarter and we believe that growth is likely to slowdown in H1 FY08,” brokerage firm Edelweiss Capital’s banking analyst Vishal Goyal said in the latest quarterly preview.
“The recent Cash Reserve Ratio (CRR) hike would further put pressure on liquidity . Managing cost of funds and maintaining Net Interest Margins in intense competition is a challenge for all the banks,” another brokerage IL&FS said in a report.
Ahead of its annual monetary policy scheduled for release on 24 April, the central bank surprised bankers by hiking the repo rate and CRR to 7.75% and 6.5%, respectively.
The decision would suck about Rs15,500 crore out of the system, while helping to temper the huge demand for loans, particularly in the housing sector.
Goyal does not expect interest rates to come down and believes RBI would consider inflation, external flows and credit growth before taking a pause on tightening measures.
According to Edelweiss Capital, private banks are expected to maintain their growth momentum on course posting 42% growth in operating profit, a jump of 36% in revenues and close to 40% growth in profits.
IL&FS estimates that HDFC Bank is likely to post 23.4% growth in revenues and a jump of 30% in the profit after tax on the back of high business growth and continuing operating performance.
Besides, the country’s largest private lender ICICI Bank is expected to post 47% y-o-y growth in profits and 39% growth in revenues driven by its stake sale in NSE for about Rs500 crore, Goyal said
Interestingly, public sector (PSU) banks are expected to lag behind private lenders with lower growth earnings, industry analysts believe. The expected revenue and profits of PSU banks are expected to grow only at 6% y-o-y and 46%, respectively.
Among PSUs, analysts expect the country’s largest lender, the State Bank of India, to post a growth of 80.6% y-o-y in net profits, while credit growth is expected to be around 25%, with stable margins. Net sales are likely to increase only 2.8%.
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First Published: Mon, Apr 09 2007. 12 03 AM IST
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