MUMBAI: Banks’ profit margins are likely to come under pressure in the second quarter as well due to rising deposit costs, although analysts will focus on loan growth trends amid weakness in the unsecured retail sector.
Analysts said slippage could also increase as banks put more risk weight on unsecured loans.
Brokerage India Infoline has said that banks’ net interest margin (NIM) has increased by 2-5 basis points compared to the first quarter of the fiscal year due to higher fixed deposit interest rates as banks are still re-pricing their deposits. We expect the points to decrease. IIFL said in its bank preview report that incremental spreads have already narrowed by 8 basis points for private sector banks due to limited loan yield expansion and remained flat for PSU banks. One basis point is 0.01 percentage point.
HDFC Bank is expected to post year-on-year profit after tax of nearly Rs 16,300 crore at the end of September quarter, registering 2.4% year-on-year growth, according to analysts. ICICI Bank is expected to report PAT of Rs 10,910 crore for the September quarter, up 6.3% year-on-year. Axis Bank is expected to report a profit of Rs 6,630 crore, up 13% year-on-year.
Bank accounts will begin from Bank of Maharashtra on Tuesday. NIM is the difference between the yield earned on loans and the yield paid on deposits.
Motilal Oswal expects target banks’ net interest income (NII) to increase by about 8.6% year-on-year and operating profit to increase by 13.2% in the second quarter.
“Therefore, for the second quarter, we estimate that private banks/PSU banks will report profit growth of 4.1%/17.2% YoY. Deposit competitiveness shows no signs of slowing down, with deposit rates Cost of funds should be sustained.”Thus, while these will continue to put pressure on NIMs, we believe the reversal in the interest rate cycle will allow PSBs to maintain margins with a higher proportion of unsecured interest book. Loans will continue to deteriorate in the second quarter,” Motilal Oswal said.
The brokerage expects banks with high exposure to microfinance and unsecured loans to see slower growth and higher credit costs. “We are pricing in slightly higher provisioning costs as recovery from existing NPAs and write-off pools slows down, while credit costs gradually normalize after being very positive recently,” Motilal said. “
Growth in institutional loans has slowed, at nearly 14% in the latest two-week period. Deposit growth remains in the 11-13% range. Analysts say the deposit-to-deposit ratio and liquidity coverage ratio will be key determinants of loan growth as deposit growth continues to lag loan growth.
Elara Capital’s note also reported NIM tensions, slowing loan growth and potential for increased slippage from unsecured loans to be key trends.
“The slower recovery trend means net slippage may rise for some companies, so credit costs may gradually normalize. Within our scope, the overall profit growth rate is expected to be 10-12%, private companies 5-10% and 15-18%.” PSU banks growth rate is %,” Elara Capital said. Yes Securities expects most banks to continue to hold NIM, but some expect NIM to decline. “Some banks have increased card interest rates on deposits, and some re-pricing of traditional low-cost deposits will remain, leading to higher blended deposit costs. This could change in our favor,” Yes Securities said. said in a memo.
IDBI Capital said one needs to be aware of the impact of increased risk weight changes in personal loans, credit cards and NBFCs on credit growth. “We need to keep a close eye on the impact of farm loan waivers on credit culture and NPA formation in the banking sector. We need to keep an eye on future credit cost guidance,” IDBI Capital said.
Banks will not benefit much from a 15 basis point decline in government securities yields due to the RBI’s changes in accounting practices implemented from the first quarter of this fiscal.
Loan growth may also slow as banks’ liquidity coverage ratios improve. “We expect credit costs to rise gradually and will keep an eye on unsecured lending stress to private sector banks and corporate slippage to PSU banks. , 3-14% below the consensus of Axis, IndusInd, Kotak and HDFC,” and also broadly in line with Bank of Baroda, Federal and ICICI,” India Infoline said.
