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ƒ Credit picks up; rising costs offset base rate hike, to impact NIM…
Recent RBI data
reveals a healthy credit growth of 23.7% YoY and
subdued deposit growth at 14% YoY. Interestingly, incremental
lending of | 1709 billion in Q3FY11 comprises | 453 billion added in
the last fortnight
#
Assuming this healthy run up continues, we expect .
banks to cover the last mile, stretching credit growth to ~19% for
FY11E on a higher base (slightly lower than the RBI estimate of 20%).
The effect of a 25-100 bps hike in the base rate industry wide has
been diffused by deposit rates being pulled up by 50-100 bps putting
NIMs under pressure. Sequentially, we estimate a 5-10 bps dip in NIM
and a flat to marginally positive NII performance for most banks in our
coverage universe (barring those with a euphoric Q2FY11 NII). On a
YoY basis, we expect strong NII growth of 32% for PSBs and 22% for
private sector banks.
ƒ PAT to strengthen despite NIM and opex woes; windfall slippages
and surge in credit cost a cause for concern…
We expect credit cost to remain high as GNPA continues to trickle in
and banks strive to reach mandatory PCR of 70%. We have also
factored in higher staff costs on account of provisioning for the
second pension option and gratuity. We estimate PAT will rise 5.6%
QoQ for PSBs and 8% QoQ for private sector banks in our coverage
universe. However, windfall slippages worsening asset quality and a
surge in credit costs may spring a negative surprise for a few banks
like SBI, Federal Bank, Bank of India, Syndicate Bank and PNB
Bank of Baroda No major surprise is expected on asset quality, which is expected to remain
healthy with NNPA at 0.4%. NIM is seen down 10 bps QoQ to 2.9%. Global
business growth is expected to be around 25% YoY
Bank of India We expect credit growth of around 22-23% YoY and higher YoA to strengthen
BoI's interest income. However, higher cost of deposits could pull down NII
resulting in a flat QoQ. Asset quality concerns linger. Hence, we have estimated
higher provisions, which would lead to sequentially lower profits
Dena Bank A strong quarter for the bank with business growth expected at ~27% YoY, NIM
above 3% despite rising cost of funds and stable asset quality. We expect lower
provisions QoQ to boost the bottomline further
IDBI Bank The bank is in its consolidation phase, focusing on CASA accumulation (targeted
18%) and reducing GNPA to ~2% by FY11 end. We expect advances to increase
by ~5% QoQ after two quarters of de-growth. Deposit growth would lag as the
bank may deploy the funds from capital infusion. We believe the euphoric Q2FY11
NII and PAT are not sustainable and estimate a sequential dip of ~ 11% and 20%
in the same, respectively
Indian Overseas
Bank
We expect the bank to quicken its business growth pace to 18% YoY as it gains a
firmer footing on asset quality front. We estimate NII and PAT will grow 28% YoY
and 106% YoY respectively, despite building in higher provisions and staff costs.
However, windfall slippages still remain a risk
Oriental Bank of
Commerce
We expect the business growth momentum to pick up slightly from the low of
16% YoY last quarter. Consequently, NII growth is seen at 25% YoY on a higher
base but only 1.2% QoQ. Provisions and opex continue to remain high. We
estimate a 40% increase in PAT to | 404 crore
Punjab National
Bank
NII growth is seen at 34% YoY on account of sustained robust credit offtake of
~28% YoY. Cost of deposits, though higher, would be supported by high CASA of
over 40%. However, yield spike may not have its full impact due to higher yielding
loans turning to NPA. Hence, we expect NIM to dip by 5-10 bps. Asset quality
pains will continue till the end of FY11
State Bank of
India
In spite of raising deposit rates two or three times, the bank is estimated to post
NII jump of 33% supported by lending growth of 19% YoY and 15% deposits
growth. Teaser loan provision is not estimated to be substantial as indicated by
the management. NPA surge may surprise negatively
Syndicate Bank We see a rise in credit cost since we expect higher NPA additions. 2G exposure
of | 2000 crore is an area of concern. Overall, we see a flat quarter QoQ since PAT
growth will be marred by higher provisions
Union Bank of
India
Robust business growth is expected for the bank as it recently crossed the | 3.2
lakh crore total business mark. We expect NII to remain flat on account of rising
cost of deposits. Also, NIM, though still above 3%, will come down 5-10% from
high of 3.35% in Q2FY11. We are still cautious on asset quality but believe that
strong business growth would protect downside on profit level
Axis Bank NIM is seen marginally down QoQ at 3.5%, on back of balanced business growth.
Asset quality is not expected to show negative surprise, to enable control credit
cost and support PAT growth.
HDFC Bank Credit growth to remain healthy and ahead of industry, seen at 30%+ YoY, while
NIM to be stable above 4%.Other income to remain subdued even in this quarter,
while another quarter of 30% YoY PAT growth.
Dhanlaxmi Bank Business mix is expected to post healthy 9% QoQ growth. C/I ratio will start
moderating down from 91% in Q2FY11 to 87% in Q3FY11. CASA proportion is seen
stable at 22%. PAT improvement is a key monitorable.
DCB No surprises expected this quarter, business growth momentum to continue. We
expect a 52% YoY growth in NII, sequentially flat other income and 24% QoQ surge
in PAT in Q3FY11.
Federal Bank NPA additions to remain this quarter. We expect balance sheet growth to slow
down considerably and process reengineering to be forefront. CASA growth to
stay healthy and is seen at 29%, to help maintain NIM ~4%.
Kotak Bank Growth in NII from banking business to continue, however higher provisions may
hurt PAT growth. Banking PAT to grow at 47% y-o-y & 8% sequentially. We
expect better performance from AMC business in Q3FY11 against loss in Q2FY11.
And capital markets business to provide stable earnings as rising volumes will
offset lower yields.
South Indian
Bank
Consistent performance this quarter with ~28% YoY business growth, strong NII
and margins protected at 2.8-3 % due to CASA and NRI deposit cushion leading to
a 20% YoY jump in profits.
Yes Bank A steep rise in wholesale rates and lower CASA proportion would pressurize cost
of funds. Thus NIM is seen down at 2.8% from 3% in Q2FY11. We will closely
monitor the bank's exposure to MFI and telecom
LIC Housing
Finance
Even after the scam issue, LICHF is estimated to grow its advances by 35% YoY
depicting that inherent fundamentals are still good. NII will remain strong with
44% YoY jump and NIM to improve marginally over Q2FY11. No major provisions
are expected due to NHB norm as excess provision of over | 100 crore is already
held in books
Reliance Capital Incrementally, contribution of the consumer finance business in topline is rising
and capital gains are slowing down. Sequentially, growth of 6% YoY in revenues is
expected. The AMC should continue to be the best performing segment of RCAP.
With streamlining of the broking segment, now it should generate profits. Stake
sale in general insurance is still awaited
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