Mumbai: Banks, particularly private lenders, are likely to post better performance in December quarter report cards, helped by robust recovery from NCLT (National Company Law Tribunal) resolutions, though credit demand remains tepid.On the other hand, non-banking finance companies (NBFCs) may see a weak quarter.
We expect improved performance for banks, led by better recovery in a few very large NPLs (non-performing loans), leading to solid recovery in earnings growth, Kotak Institutional Equities said in a note.Impairment ratios will decline, but slippages would be high led by a few NBFCs.
While liquidity has improved, weak vehicle sales and moderate housing volumes will translate into weak loan growth at most NBFCs/HFCs (housing finance companies).
There could also be stable to marginal moderation in NIMs (net interest margins) for non-banks, they added.Among banks, corporate lenders will be in the limelight on the back of strong recovery from NCLT resolutions driving earnings, an improvement in asset quality, lowering of slippages and better PCRs, said analysts at Prabhudas Lilladher.Loan growth, although, will be a disappointment for many banks, as the industry continues to struggle as reflected in RBIs (Reserve Bank of India) macro data, analysts at Prabhudas Lilladher (PL) said in a note.The banking sector is expected to witness continued weakness in growth in 3QFY20, with domestic growth projected at 2 per cent quarter-on-quarter (QoQ) and 7 per cent year-on-year (YoY), latest RBI data showed.They pointed out that a few vectors to watch will be PCRs (provision coverage ratios) post recoveries, non-corporate segment slippages, Casa (current account savings account)/retail deposits augmentation and margins.Most large private sector banks will see full tax benefit coming in to the earnings, as they fully marked down DTA (deferred tax assets) last quarter, PL analysts said.The brokerage expects state-run banks to see a sharp recovery in earnings with lower provisioning, strong recoveries in a couple of accounts from NCLT resolutions and PCR getting into comfort zone.Analysts at Motilal Oswal Financial Services (MOFSL) expect core profitability for private banks to continue improving.
It estimates private banks to report operating profit growth of around 15 per cent YoY.MOFSL estimates private banks to deliver 40 per cent YoY PAT growth, led by stable opex, moderation in credit cost, recoveries in select large NCLT cases such as Essar Steel, Ruchi Soya and the like, and a lower tax outgo.The brokerage expects ICICI Bank to report a 146 per cent YoY increase in net earnings and also a healthy 20 per cent YoY growth in net interest income (NII).MOFSL estimates weakness in PSU banks earnings, as sluggish loan growth, higher slippages (mainly caused by stressed HFCs) and divergence in GNPLs are likely to keep credit costs elevated, but lower opex run-rate and higher recoveries from NCLT resolutions are likely to cushion earnings.The brokerage expects public sector banks (PSBs) to deliver YoY NII growth of 15% and PAT growth of 36 per cent, mainly led by strong earnings recovery in SBI.
It expects PSBs growth to remain healthy at around 27 per cent YoY.Kotak Institutional Equities expects banks under its coverage to show volatile earnings growth, primarily due to inconsistencies between banks in the recognition of recovered amounts in a few large corporate NPL cases and lower tax rate, as DTA costs were adjusted for private banks in Q2FY20 while the status of the same for public banks is awaited.We are likely to see part-recovery under various heads such as interest income, income from written-off loans and/or reversal of provisions based on each bank's status on each of these NPLs, Kotak analysts said in a note.Core performance will be weak as loan growth has slowed to around 7% year on year, which would put pressure on revenue growth, and we expect the decelerating trend to be more visible on retail-oriented loan books, they said.The brokerage firm sees limited business concerns for small finance banks such as Equitas and AU, which are seeing a steady improvement in core performance.Kotak expects most NBFCs to deliver single-digit growth in core PBT due to weak loan growth, reflecting lower disbursements over the past few quarters.We expect loan growth to remain muted in almost all segments.
Most NBFCs will deliver 1-3 per cent QoQ loan growth, expect Bajaj, which is likely to post 9 per cent loan growth QoQ, Kotak analysts said in a note.