Banks’ financial results for the second quarter (July-September) are typically better than the typically weak first quarter, but analysts expect the quarter to be “weak” and softer this time around. I’m predicting it. The lender’s annualized profit growth rate is expected to be around 10-12%. Analysts expect private banks to grow 5-10% and state-run banks to grow 15-18% in the three months to September.
“We expect Q2 FY25 to be characterized by continued funding cost pressures and NIM (net interest margin) tensions due to the impact of penalties. Slower loan growth (slower institutional loan growth) ) and deposit growth is below trend.Increasing slippage and undercurrent in the unsecured and MFI (microfinance) segments are likely to be key, Elara Capital said in a pre-earnings note. of banks could experience higher net slippage and credit costs, it added.
Core profit is the profit earned from a company’s main business activities, and in the case of banks, it is broadly defined as net interest income.
Public sector Bank of Maharashtra began the bank’s second quarter earnings season on Tuesday, posting a net profit of Rs 1,327 crore, up 44 per cent year-on-year. Its progress increased by 19%. Among major financial institutions, Axis Bank is scheduled to be the first to announce its second quarter results on October 17th.
Given relatively strong deposit growth, investors’ focus will be on margins and credit costs as banks grapple with slower growth, higher deposit rates and signs of stress in microfinance, credit cards and small loans. It appears to be moving.
Credit growth is expected to slow to 11-14% on an annualized basis, with subsequent growth expected to be in the 2.7-5% range. While IDFC Bank and CSB Bank are seen to be leading in loan growth, HDFC Bank, Bank of Baroda, IndusInd Bank, State Bank of India and Karur Visya Bank are seen to be lagging behind the industry average. There is.
“The slowdown in credit growth is likely occurring primarily among private banks, as they seek to maintain balance levels by lowering their LDRs (loan-to-deposit ratios). “We believe credit growth is likely to remain healthy as sectoral banks (PSBs) maintain a better position than their private banking peers,” Axis Securities said.
In contrast, deposits rose about 15% year-on-year in the September quarter and are expected to rise between 3.8% and 4.4% in the previous three months. As a result, most banks’ margins are expected to shrink by 2 to 10 basis points quarter-on-quarter, analysts said.
“Credit growth is currently down to around 14%, which is a temporary benefit as banks are under pressure on deposits anyway.However, especially as we enter the festival season, corporate funding demand The battle for deposits is likely to continue for at least another month or two as prices increase,” Deepak Jasani, head of retail research at HDFC Securities, told Mint. “While we don’t expect deposit rates to fall anytime soon, banks’ margins may narrow by 2-5 basis points in the coming years as lending rates are not increasing proportionately to deposit rates.”
“Due to the lag effect, the rise in deposit costs is expected to outweigh the largely stable loan yields. However, the pace of decline in NIM is slowing,” PL Capital said in a note. Net interest income is expected to increase 3.3% on a quarterly basis, while loan growth is expected to be 3.4%.
Fee income is expected to increase during the quarter, but this may be offset by higher operating expenses as most banks increase spending on technology upgrades, regulatory compliance and human resources.
In terms of asset quality, although slippage is expected to remain stable, banks’ provisions and credit costs are rising, which is seen as weighing on overall profitability.
“While the macro environment due to rising interest rates has already caused an initial build-up of stress, slippage should remain broadly stable at this level. It will expand gradually, partly due to the impact of gold buffers,” he said, adding that Bank of Baroda and RBL Bank’s provisions are expected to increase significantly while DCB Bank’s provision will increase slightly. and City Union Bank.
The biggest concern this quarter will be banks’ microfinance portfolios. Banks have provided guidance towards improving collection trends since the general election, but the trend remains weak.
“Seasonal agricultural stress experienced in the first quarter has partially eased in the second quarter, apart from stress in Telangana (mainly due to the impact of loan waivers) and Gujarat (due to recent floods). MK Global expects it to primarily benefit PSU banks and large private sector banks.However, “stress in the MFI sector will not subside and may manifest itself in higher slippages and slower recovery.” Non-performing assets may be higher in banks with a large number of MFIs such as IndusInd, Ujjvan, RBL and AU, it said in a note. Bandhan.
Analysts said another weak quarter could weigh on profits due to slower growth and rising expectations for an early interest rate cut by the Reserve Bank of India, which could weigh on bank earnings and thus stock performance. . Some brokerages have lowered earnings estimates and price targets for their own stocks by 3-9% for financial institutions such as IndusInd Bank, RBL Bank, Union Bank and IDFC Bank.
Major banks such as ICICI Bank and HDFC Bank continue to be among the top stocks, with most analysts saying that valuations of some mid-sized private banks and PSU banks appear to be overvalued. . State Bank of India and Indian Bank are the most likely options among state-run financial institutions.
