India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian banks
1Q12 preview: Bad quarter for PSUs
Event
Sharp divergence between PSUs and private banks: We expect our PSU
banks universe to report a 13% YoY decline in profits in 1Q12 (1% decline
excluding SBI) compared with the private sector banks universe which we
expect to report a sharp 33% YoY increase in profits.
Impact
NIMs expected to compress 15-20bp QoQ: On average we expect NIMs to
be down around 15-20bp QoQ driven by higher cost of funds. The lagged
deposit re-pricing coupled with the savings deposit rate increase is likely to
hurt NIMs. Note that banks hiked lending rates mid-quarter and hence the full
impact of the higher lending rates will be felt only in 2Q FY12.
Overall provisions to remain high: We expect asset quality to be under
pressure due to slippages arising out of migration to online CBS method of
classification of NPLs. Overall provisions for loans are expected to be high
due to higher credit costs and higher standard asset provisioning on
restructured accounts where RBI had increased the standard asset
provisioning to 2% from 40bp. The revised interest recognition and asset
classification (IRAC) norms, under which certain categories of NPLs are now
required to carry higher provisions, are also likely to keep provision levels
high. We expect overall provisions (including MTM provisions for investment
portfolio) to be up 110% YoY for PSU banks (66% excluding SBI) and decline
31% YoY for private banks led mainly by ICICI Bank.
Additional hit in the form of higher MTM provisions: The sharp rise in
bond yields – nearly 60bp for two-year govt bond yield and around 35bp for
10-year bond yield – is likely to have an MTM impact on investment portfolio.
However, a large portion of PSU banks’ book is now under the HTM category
and we expect the impact to be moderate but still much higher than levels
seen in 1Q11 or 4Q11.
Other negatives – weak loan growth, poor non-interest income levels:
Banks lent rampantly to the telecom sector towards the end of June 2010.
With the high base, loan growth could be weak and be sub-20% for the entire
sector, in our view. The slowdown in sanctions to the infrastructure industry,
coupled with rising bond yields, is likely to affect fees and treasury income
respectively, in our view.
Key numbers to look out for – margins and slippages: The critical
numbers to look out for, in our view, would be the extent of NIM compression
and slippages where there could be some negative surprises heading into the
results. We believe slippage similar to the 4Q level and NIM compression of
more than 25bp will not be taken well by the market and could drive stocks to
de-rate further.
Outlook
Would UW PSUs into the results and OW private banks: We believe the
best way to play the results would be to short a basket of PSU banks and go
long on private banks. We prefer HDFC Bank and ICICI Bank and would
avoid Union Bank and Bank of India in the near term.
No comments:
Post a Comment