Indian financials 1QFY12 preview """CLSA

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Modest growth
During 1QFY12, we expect Indian banks to report just 6% YoY growth in
profit, but ex-SBI profit growth would be higher at 17%. While the core
profit (PPP ex treasury) should see a healthy 20% growth, lower treasury
gains and rise in NPL provisions will suppress profit growth. Margins are
likely to contract as the rise in cost of term and savings deposits would
exceed hike in lending rates. Asset quality will be the key trend to watch
out, but we do not expect as much stress as in 4Q. HDFC Bank is likely to
surprise and expectations on SBI are low.
Modest profit growth
q During 1QFY12, we expect banks under our coverage to report a mere 6% growth
in net profit. Sector’s profit growth is being impacted by 21% decline in SBI’s profit
hence ex-SBI sector profit growth would be higher at 17%.
q Healthy loan growth and some YoY expansion in margins will drive 19% NII growth
which will be the key driver of 20% growth in pre-provision profit, ex treasury.
q However, we expect the contribution from treasury gains (net) to decline sharply
which along with growth in NPL provision would suppress net profit growth.
q On a sequential basis, NIMs would contract due to rise in cost of term deposit and
50bps hike in administered rate on savings deposit.
q SBI could be the only bank to report stable/ some expansion QoQ in NIM due to (1)
low base of 4Q and (2) higher increase in lending rates in past few months.
Asset quality is key variable
q Asset quality trends will be crucial in 1QFY12, especially for the PSU banks as most
of them reported high slippages in 4QFY11.
q Part of the slippages in 4Q occurred as PSU banks migrated from a manual system
for recognition of NPA to automated system.
q We expect core asset quality pressure for banks to moderate in FY12, but amount
of fresh slippages can be volatile as banks move to system based NPA recognition.
q Private banks may see some uptick in delinquencies due to slippages in MFI assets
Upside in HDFC Bank, expectations low on SBI
q We expect ICICI to report 35% growth in profit due to pick-up in income growth
and lower provisioning charges. But loan growth may moderate and NIMs may
contract from 4QFY11 levels, partly due to seasonality.
q HDFC Bank may surprise positively due to healthy topline growth and asset quality.
q Expectations on SBI are quite low (we expect 21% fall in profit) due to higher
provisions. Hence inline or better than expected quarter could drive some re-rating.
q Among Infra-NBFCs, we expect moderation in income growth due to slowdown in
loan growth as well as pressure on spreads.