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BANKING & NBFCS
Outlook: Neutral
q During Q1FY12, core income for Banks & NBFCs under our coverage is
expected to register a growth of 19.2% (YoY). Our private banking universe
is likely to grow faster at 21.3%, while PSU banks under our coverage
is likely to grow at 18.5%; at the same time, NBFCs are likely to
grow at 19.5%. Net profit for Banks & NBFCs under our coverage is likely
to be subdued with only 2.9% growth (YoY) mainly on back of subdued
performance by SBI (excluding SBI, PAT for our coverage universe is likely
to grow at 18.4%).
q Credit growth saw marginal drop to 20.7% YoY (as on June 17, 2011) as
against 21.1% witnessed in prior fortnight (June 03, 2011); however, it
was higher than 19.5% growth witnessed a year ago. Deposit mobilization
has slightly improved to 18.2% (as on June 17, 2011) as against
13.9% witnessed a year ago.
q We expect 15-20 bps compression in NIM during Q1FY12 (QoQ) on back
of lagged impact of deposit re-pricing at higher rates. However, this
would be partly compensated by the recent hike in lending rates as assets
are re-priced faster than the deposits. However, banks are likely to
witness stable NIMs on YoY basis due to slightly lower base in Q1FY11.
q We expect asset quality deterioration to stabilize during Q1FY12. PSU
banks are likely to report slightly higher slippages with the shift to system-
based NPA recognition. However, strong recoveries & upgradation
are likely to cushion from any sharp rise in overall NPAs. At the other
end, private sector banks would further witness improvement in their
asset quality leading to lower credit costs.
q 10-Yr G-Sec yield (7.8% 2021) has moved up by 34 bps to 8.33% during
Q1FY12. Hence, we expect few banks having higher share of AFS/HFT
book to take MTM depreciation hit on their Investment portfolio. We
also expect moderate growth in non-interest income for banks under our
coverage due to muted treasury profit along with lower 3rd party distribution
income.
q Top Picks: ICICI bank, Axis Bank, SBI, BoB, Union Bank
Core income expected to grow at 19.2% for banks & NBFC under
our coverage; however, net income growth to be much subdued
During Q1FY12, core income for Banks & NBFCs under our coverage is expected to
register a growth of 19.2% (YoY). Our private banking universe is likely to grow
faster at 21.3%, while PSU banks under our coverage is likely to grow at 18.5%; at
the same time, NBFCs are likely to grow at 19.5%.
Net profit for Banks & NBFCs under our coverage is likely to be subdued with only
2.9% growth (YoY) mainly on back of subdued performance by SBI (excluding SBI,
PAT for our coverage universe is likely to grow at 18.4%).
In terms of Net Interest Income (NII), public sector banks under our coverage are
likely to report 18.5% growth. However, in terms of net profit, we expect them to
witness decline (11.33% YoY) mainly on back of subdued performance by the SBI.
We are expecting SBI to report 40.2% decline in its bottom-line on back of higher
operating expenses and higher provisions (management has guided that they need
to provide Rs.11.0 bn in next two quarters to meet RBI's coverage requirements).
We expect BoB and IOB to deliver relatively better numbers in our PSU banking
space. Similarly in private banking universe, we expect Axis bank, HDFC bank and
ICICI bank to deliver better bottom line growth.
Credit growth saw some marginal drop vis-à-vis last fortnight;
gap between deposits and credit growth is narrowing
Credit growth saw marginal drop to 20.7% YoY (as on June 17, 2011) as against
21.1% witnessed in prior fortnight (June 03, 2011); however, it was higher than
19.5% growth witnessed a year ago. Deposit mobilization has slightly improved to
18.2% (as on June 17, 2011) as against 13.9% witnessed a year ago.
Over last six months gap between credit growth and deposit growth has declined
from 9.0% (as on December 17, 2010) to 2.5% (as on June 17, 2011) on back of
two factors - rise in interest rate with RBI's tightening is affecting the credit off-take,
while sharp rise in deposit rates in recent past is helping in more deposit mobilization.
We believe that rise in term deposit rates is leading to higher term-deposit mobilization
as compared to demand deposit mobilization. Demand deposits for the system
have declined by 3.75% as on June 17, 2011. We are expecting loan growth to be
around 18-19% during FY12 and deposit growth in the system is likely to calibrate
the loan growth.
NIM to compress by 15-20 bps QoQ; however to remain stable
YoY
We expect 15-20 bps compression in NIM during Q1FY12 QoQ (again depending on
the CASA mix or liability franchise of the individual banks) on back of lagged impact
of deposit re-pricing at higher rates. However, this would be partly compensated by
the recent hike in lending rates as assets are re-priced faster than the deposits. However,
banks are likely to witness stable NIMs on YoY basis due to slightly lower base
in Q1FY11.
Banks to report higher MTM depreciation hits; treasury gains are
also likely to be muted
10-Yr G-Sec yield (7.8% 2021) has moved up by 34 bps to 8.33% during Q1FY12.
Hence, we expect few banks having higher share of AFS/HFT book to take MTM
depreciation hit on their Investment portfolio. We also expect moderate growth in
non-interest income for banks under our coverage due to muted treasury profit along
with lower 3rd party distribution income.
Asset quality to stabilize; PSU banks to witness higher slippage
while Pvt banks to see improvement
We expect asset quality deterioration to stabilize during Q1FY12. PSU banks are
likely to report slightly higher slippages with the shift to system-based NPA recognition.
However, strong recoveries & upgradation are likely to cushion from any sharp
rise in overall NPAs. Hence, we are expecting stable gross NPA with some negative
bias.
On the other hand, we have seen NPA formations in retail segment have reduced.
Therefore, we are expecting private sector banks to report further improvement in
their asset quality leading to lower credit costs.
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