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Banking and Financial Institutions
ƒ Credit growth concerns continue, NIM expected to be stable QoQ…
The credit growth outlook remains bleak as inflation still remains out of
RBI’s comfort zone despite policy rates being hiked 12 times since
March 2010. Credit growth has remained muted at 3.4% YTD (20.4%
YoY
#
). With the RBI willing to sacrifice economic growth to control
inflation, we see the pain period getting prolonged for banks with credit
growth in the range of 17-18% for FY12E. We expect NIM to remain
stable for most banks in Q2FY12E as they have been able to pass on
higher costs by hiking their base rate/PLR considerably. On the other
hand, deposit rates have remained stable with deposits growing 6%
YTD (17.5% YoY
#
). However, going forward, in case the RBI hikes rates
further and banks absorb higher costs so as to spur credit growth, we
see NIMs trending even lower in H2FY12E.
ƒ High slippages to remain; investment MTM provisions to step up...
We expect slippages to remain high (in line with Q1FY12) as banks are
yet to shift loans below | 10-50 lakh to system based NPA recognition.
Fresh slippage for most PSBs including SBI, BOI, etc. is expected to stay
high. MTM provisions could remain high for the AFS investment
portfolio as the 10 year G-Sec closed high at 8.44% (quarter end). We
expect PSBs to report 13.1% NII growth and 5.5% PAT de-growth while
private banks are expected to be better off with NII and PAT growing
16.4% and 24.8% YoY, respectively
: Company specific view (Banks)
Company Remarks
Bank of Baroda We expect a consistent performance except for the continuation of the high slippage
trend seen in the past two quarters. Credit growth of 23% YoY will boost NII and PAT
by 13.5% and 7% YoY, respectively
Bank of India Asset quality peak out is nowhere in sight as fresh slippages are expected to continue
to flow in this quarter as well. We estimate NII will inch up 4.2% QoQ with NIM at 2.2
2.25% after declining by 75 bps QoQ to 2.19% in Q1FY12. The cost to income ratio is
seen stable QoQ at 46%. Credit costs will continue to remain high pressurising
bottomline
Dena Bank We expect NIM to be maintained at 2.9% with 6.1% QoQ NII growth. Partial payment
of ~| 1500 crore SEB loans is expected, trimming power sector exposure. Shifting of
accounts below | 50 lakh to system based NPA recognition could result in high
slippages
Indian Overseas
Bank
We believe the bank may see some pressure on the asset quality front due to fresh
slippages this quarter after Q1FY12 saw a trend reversal with GNPA rising 7% QoQ.
We have estimated higher credit costs this quarter and expect 36% YoY growth in
business to boost PAT by 11% YoY
Oriental Bank of
Commerce
Fresh slippages are expected in Q2FY12E on account of banks shifting loans below |
10 lakh to system based NPA recognition. We expect below industry growth for OBC
at 15% YoY (2.5% QoQ) with NIM under pressure and NII declining 4% YoY. Higher
opex and credit costs will lead to PAT declining 12% YoY (1.6% QoQ)
Punjab National
Bank
A 7% QoQ decline in PAT is expected on account of sequentially flat NII and 12% dip
in other income due to lower treasury gains. Asset quality pressure will continue with
incremental slippages pushing up credit costs by 74% YoY (flat QoQ)
State Bank of
India
Slippages are expected to remain high leading to higher provision cost. However, the
benefit of previous high cost deposits repricing and some cash from Harshad Mehta's
custodian will add to profitability. MTM on equity and bond investments may be a
negative. We expect PAT to grow at 23% in Q2FY12 and margins to stay flat
sequentially
Syndicate Bank Credit growth is expected to be in line with industry at 18% YoY with NIM estimated
at 3%. Shifting of accounts below | 25 lakh to system based NPA recognition and
12% infrastructure exposure could result in high slippages. We estimate provision of |
369 crore for Q2FY12
Union Bank of
India
Asset quality concerns are expected to persist this quarter with credit costs factored
in at elevated levels. We expect business growth of 16% YoY and NII growth of 6%
YoY with NIM maintained at 3.1%. We estimate PAT will increase 9% QoQ to | 506
crore (67% YoY on a lower base)
Axis Bank We anticipate 26% YoY (5.5% QoQ) growth in credit after a sequential contraction of
7.4% witnessed in Q1FY12. NII growth is seen at 11% YoY with other income
increasing 12% YoY. We expect the bank to face higher slippages this quarter. We
have, consequently, factored in higher provisioning leading to PAT declining by 3%
QoQ to | 915 crore
City Union Bank A steady performance is expected this quarter with business growth of 25% YoY (5%
QoQ) leading to NII rising 27% YoY. No negative surprise is seen on margin front. We
see cost to income ratio stable at 36% and asset quality maintained QoQ. We
estimate PAT to increase 11% YoY (17% QoQ) to | 68.6 crore.
DCB A dull quarter for the bank with credit growth expected to be muted at 13% YoY. NII
growth is seen flat QoQ with other income rising 8.5% QoQ. CASA is estimated to be
stable at 33% with margins maintained sequentially. We expect a 10% QoQ decline in
PAT due to higher operating costs and provisions
Dhanlaxmi Bank The bank is required to make provisions of | 7 crore to reach PCR of 70%, which it
expects to meet through recoveries. However, we expect high provisions at | 12
crore. The C/I is expected to stay at elevated levels of 81.1%. The bank is expected to
raise capital for funding its credit growth
Source: Company, ICICIdirect.com Research
Company specific view contd. (Banks)
HDFC Bank Good show to continue with business growing 5% QoQ and CASA maintained at
48.5% protecting margins at 4.2%. Asset quality is expected to be stable. NII growth
is seen at 21% YoY while other income is expected to stay muted. We estimate PAT
will grow 30% YoY to | 1185 crore
Federal Bank We estimate 16% YoY credit growth with NIM expected to shrink to 3.8% compared
to 4.4% in Q2FY11. High provisioning could dent profit as GNPA (3.8% average GNPA
ratio in the past five quarters) continues to be a major concern
Kotak Bank We expect the bank to see loan growth of 29% YoY in Q2FY12 and full year estimates
to be in the range of 25-30%. Margins will stay at 4.6-4.8% in the quarter after a sharp
cut last quarter. NPA is not a concern area for the bank. Consolidated performance
will stay flattish
South Indian
Bank
We see credit offtake growth at 32% YoY (6.5% QoQ) and deposit growth at 33% YoY
(5% QoQ) in Q2FY12E. Margins will be maintained at ~2.8% with NII increasing 10%
YoY. Asset quality will remain stable QoQ with provisioning estimated a tad above last
quarter
Yes Bank We expect credit growth of 8.5% QoQ with NIM of 2.8%. C/I ratio may increase to
38.1% for Q2FY12 as the bank adds 25 branches per quarter for retail expansion. The
bank made low provision of | 1.5 crore in Q1FY12 due to recoveries, which is
expected to be back on track in Q2FY12 at | 14 crore
Source: Company, ICICIdirect.com Research
: Company specific view (NBFCs)
Company Remarks
IDFC We expect loan book growth to slow down to 18% YoY to | 40588 crore against 30%
seen in Q1FY12. NPAs are not expected to rise this quarter but may see spikes after a
couple of quarters possibly and may be lumpy
LIC Housing
Finance
Credit will grow at 27% YoY. With recent rate hikes in home loans, we believe
margins will stabilise with NII growth at 25% YoY. NPA accretions will be slower
leading to provisions remaining lower at | 21.1 crore while profitability will grow at
20% YoY to | 281 crore
Reliance Capital Overall, a stable quarter. We expect operating costs to be maintained at Q1FY12
levels and revenue growth at 2% QoQ to increase bottomline to | 72 crore. We have
not factored in capital gains, if any, to come from the Nippon deal
Source: Company, ICICIdirect.com Research
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