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BANKING & NBFCS
Outlook: Neutral
q We expect tepid earning growth during Q2FY12 - while core income for
Banks & NBFCs under our coverage is expected to register a growth of
13.4% (YoY), net profit growth is expected to be modest at 3.0% (ex-SBI,
net profit for our coverage universe is likely to grow at 11.3% YoY).
Among the banking universe, private sector banks are likely to do better
than PSU banks (Pvt banks: 21.3%, PSU banks: -7.2%) under our coverage.
q We are expecting muted credit growth during Q2FY12; although system
wide loan growth came at 20.4% YoY (as on September 09, 2011), in
absolute terms loan declined by Rs.120 bn during Q2FY12 (till September
09, 2011). This implies sequential growth of 0.3% during Q2FY12; YTD
growth of 3.4%. However, deposit mobilization has slightly improved
and has come at 17.7% (as on September 09, 2011) as against 14.7% witnessed
a year ago. The weak incremental C/D ratio during H1FY12 (YTD)
at 42.7% has led to ~200 bps decline in the C/D ratio to 73.8% (as on
September 09, 2011).
q We expect flat/marginal compression in NIM (QoQ) during Q2FY12 as
compared to 20-30 bps compression witnessed during Q1FY12 as transmission
of high base rates would more than offset the lagged impact of
deposit re-pricing at higher rates. However, NBFCs are likely to witness
continued compression on their margins, as borrowing costs for them
have been rising with limited scope to charge higher rates from borrowers
on back of moderating loan growth.
q We expect PSU banks which are yet to migrate (fully) to automated NPA
recognition system are likely to witness higher slippage and hence have
to set aside higher provisions during Q2FY12. Many banks are also likely
to spring negative surprises by recognizing higher slippage in the agriculture
segment.
q 10-Yr G-Sec yield has moved up by only 9 bps to 8.42% during Q2FY12
while the yields for 1-Yr G-Sec and 2-Yr G-Sec rose by 13 bps and 6 bps,
respectively during the same period. Hence, we don't foresee any significant
impact on banks' earnings due to limited MTM depreciation. 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 13.4% for banks & NBFC under
our coverage; however, net income growth to be much subdued.
During Q2FY12, core income for Banks & NBFCs under our coverage is expected to
grow at 13.4% YoY. However, net profit growth is expected to be modest at 3.0%
(ex-SBI, net profit for our coverage universe is likely to grow at 11.3% YoY). Among
the banking universe, private sector banks are likely to do better than PSU banks
(Pvt banks: 21.3%, PSU banks: -7.2%) in terms of net profit.
In terms of Net Interest Income (NII), public sector banks under our coverage are
likely to report 15.3% growth. However, in terms of net profit, we expect them to
report a decline of 7.2%, mainly on back of subdued performance by the SBI. We
are expecting SBI to report 27.3% decline in its bottom-line on back of higher provisions
(Rs.5.5 bn to be provided to meet RBI's coverage requirements along with
higher NPA provision requirement as slippage has remained at elevated levels during
last 2-3 quarters).
We expect Union bank to deliver relatively better numbers in our PSU banking
space, while Axis bank and HDFC bank are likely to deliver better bottom line
growth among private banking space.
Muted credit growth expected during Q2FY12; liquidity in the
system is improving as gap between deposits and credit growth
is narrowing
We are expecting muted credit growth during Q2FY12; although system wide loan
growth came at 20.4% YoY (as on September 09, 2011), in absolute terms loan
declined by Rs.120 bn during Q2FY12 (till September 09, 2011). This implies sequential
growth of 0.3% during Q2FY12; YTD growth of 3.4%. However, deposit mobilization
has slightly improved to 17.7% (as on September 09, 2011) as against 14.7%
witnessed a year ago.
Over last nine months, gap between credit growth and deposit growth has declined
from 9.0% (as on December 17, 2010) to 2.7% (as on September 09, 2011) on
back of two factors - rise in interest rate with RBI's tightening policy is definitely affecting
the credit off-take, while sharp rise in deposit rates in recent past is also
helping in more deposit mobilization.
The weak incremental C/D ratio during H1FY12 (YTD) at 42.7% has led to ~200 bps
decline in the C/D ratio to 73.8% (as on September 09, 2011) from 75.7% (as on
March 25, 2011). 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 9.1% as on September 09, 2011 (14.2%
decline YTD). We are expecting loan growth to be around 17-18% during FY12 and
deposit growth in the system is likely to calibrate the loan growth.
Expect flat/marginal compression in NIM (QoQ) during Q2FY12 as
compared to 20-30 bps compression witnessed during Q1FY12
We expect flat/marginal compression in NIM (QoQ) during Q2FY12 as compared to
20-30 bps compression witnessed during Q1FY12 (again depending on the CASA
mix or liability franchise of the individual banks) as transmission of high base rates
would more than offset the lagged impact of deposit re-pricing at higher rates.
However, NBFCs are likely to witness continued compression on their margins, as
borrowing costs for them have been rising with limited scope to charge higher rates
from borrowers on back of moderating loan growth.
No significant impact on earnings due to limited MTM depreciation;
treasury gains are also likely to be muted
10-Yr G-Sec yield has moved up by only 9 bps to 8.42% during Q2FY12 while the
yields for 1-Yr G-Sec and 2-Yr G-Sec rose by 13 bps and 6 bps, respectively during
the same period. Hence, we don't foresee any significant impact on banks' earnings
due to limited MTM depreciation. However, during Q2FY12, corporate bond yield
moved in opposite direction (1-Yr AAA: fell by 3 bps; 2-Yr AAA: fell by 10 bps; 5-Yr
AAA: fell by 6 bps).
We expect banks having higher share of AFS/HFT book along with high modified
duration to report some MTM hit during Q2FY12. 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.
PSU banks which are yet to migrate (fully) to automated NPA recognition
system are likely to witness higher slippage; Pvt banks
are safer bet in current deteriorating macro-economic environment
We expect PSU banks which are yet to migrate (fully) to automated NPA recognition
system are likely to witness higher slippage and hence have to set aside higher provisions
during Q2FY12. Many banks are also likely to spring negative surprises by
recognizing higher slippage in the agriculture segment.
On the other hand, we have seen that, 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.
During Q2FY12, we are expecting higher restructuring of loans as many segments
like infrastructure, textiles, mining & MFIs etc are facing stress. This would be more
specific to banks having higher exposure to these segments. However, we don't
foresee any systemic risk arising out of this.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANKING & NBFCS
Outlook: Neutral
q We expect tepid earning growth during Q2FY12 - while core income for
Banks & NBFCs under our coverage is expected to register a growth of
13.4% (YoY), net profit growth is expected to be modest at 3.0% (ex-SBI,
net profit for our coverage universe is likely to grow at 11.3% YoY).
Among the banking universe, private sector banks are likely to do better
than PSU banks (Pvt banks: 21.3%, PSU banks: -7.2%) under our coverage.
q We are expecting muted credit growth during Q2FY12; although system
wide loan growth came at 20.4% YoY (as on September 09, 2011), in
absolute terms loan declined by Rs.120 bn during Q2FY12 (till September
09, 2011). This implies sequential growth of 0.3% during Q2FY12; YTD
growth of 3.4%. However, deposit mobilization has slightly improved
and has come at 17.7% (as on September 09, 2011) as against 14.7% witnessed
a year ago. The weak incremental C/D ratio during H1FY12 (YTD)
at 42.7% has led to ~200 bps decline in the C/D ratio to 73.8% (as on
September 09, 2011).
q We expect flat/marginal compression in NIM (QoQ) during Q2FY12 as
compared to 20-30 bps compression witnessed during Q1FY12 as transmission
of high base rates would more than offset the lagged impact of
deposit re-pricing at higher rates. However, NBFCs are likely to witness
continued compression on their margins, as borrowing costs for them
have been rising with limited scope to charge higher rates from borrowers
on back of moderating loan growth.
q We expect PSU banks which are yet to migrate (fully) to automated NPA
recognition system are likely to witness higher slippage and hence have
to set aside higher provisions during Q2FY12. Many banks are also likely
to spring negative surprises by recognizing higher slippage in the agriculture
segment.
q 10-Yr G-Sec yield has moved up by only 9 bps to 8.42% during Q2FY12
while the yields for 1-Yr G-Sec and 2-Yr G-Sec rose by 13 bps and 6 bps,
respectively during the same period. Hence, we don't foresee any significant
impact on banks' earnings due to limited MTM depreciation. 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 13.4% for banks & NBFC under
our coverage; however, net income growth to be much subdued.
During Q2FY12, core income for Banks & NBFCs under our coverage is expected to
grow at 13.4% YoY. However, net profit growth is expected to be modest at 3.0%
(ex-SBI, net profit for our coverage universe is likely to grow at 11.3% YoY). Among
the banking universe, private sector banks are likely to do better than PSU banks
(Pvt banks: 21.3%, PSU banks: -7.2%) in terms of net profit.
In terms of Net Interest Income (NII), public sector banks under our coverage are
likely to report 15.3% growth. However, in terms of net profit, we expect them to
report a decline of 7.2%, mainly on back of subdued performance by the SBI. We
are expecting SBI to report 27.3% decline in its bottom-line on back of higher provisions
(Rs.5.5 bn to be provided to meet RBI's coverage requirements along with
higher NPA provision requirement as slippage has remained at elevated levels during
last 2-3 quarters).
We expect Union bank to deliver relatively better numbers in our PSU banking
space, while Axis bank and HDFC bank are likely to deliver better bottom line
growth among private banking space.
Muted credit growth expected during Q2FY12; liquidity in the
system is improving as gap between deposits and credit growth
is narrowing
We are expecting muted credit growth during Q2FY12; although system wide loan
growth came at 20.4% YoY (as on September 09, 2011), in absolute terms loan
declined by Rs.120 bn during Q2FY12 (till September 09, 2011). This implies sequential
growth of 0.3% during Q2FY12; YTD growth of 3.4%. However, deposit mobilization
has slightly improved to 17.7% (as on September 09, 2011) as against 14.7%
witnessed a year ago.
Over last nine months, gap between credit growth and deposit growth has declined
from 9.0% (as on December 17, 2010) to 2.7% (as on September 09, 2011) on
back of two factors - rise in interest rate with RBI's tightening policy is definitely affecting
the credit off-take, while sharp rise in deposit rates in recent past is also
helping in more deposit mobilization.
The weak incremental C/D ratio during H1FY12 (YTD) at 42.7% has led to ~200 bps
decline in the C/D ratio to 73.8% (as on September 09, 2011) from 75.7% (as on
March 25, 2011). 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 9.1% as on September 09, 2011 (14.2%
decline YTD). We are expecting loan growth to be around 17-18% during FY12 and
deposit growth in the system is likely to calibrate the loan growth.
Expect flat/marginal compression in NIM (QoQ) during Q2FY12 as
compared to 20-30 bps compression witnessed during Q1FY12
We expect flat/marginal compression in NIM (QoQ) during Q2FY12 as compared to
20-30 bps compression witnessed during Q1FY12 (again depending on the CASA
mix or liability franchise of the individual banks) as transmission of high base rates
would more than offset the lagged impact of deposit re-pricing at higher rates.
However, NBFCs are likely to witness continued compression on their margins, as
borrowing costs for them have been rising with limited scope to charge higher rates
from borrowers on back of moderating loan growth.
No significant impact on earnings due to limited MTM depreciation;
treasury gains are also likely to be muted
10-Yr G-Sec yield has moved up by only 9 bps to 8.42% during Q2FY12 while the
yields for 1-Yr G-Sec and 2-Yr G-Sec rose by 13 bps and 6 bps, respectively during
the same period. Hence, we don't foresee any significant impact on banks' earnings
due to limited MTM depreciation. However, during Q2FY12, corporate bond yield
moved in opposite direction (1-Yr AAA: fell by 3 bps; 2-Yr AAA: fell by 10 bps; 5-Yr
AAA: fell by 6 bps).
We expect banks having higher share of AFS/HFT book along with high modified
duration to report some MTM hit during Q2FY12. 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.
PSU banks which are yet to migrate (fully) to automated NPA recognition
system are likely to witness higher slippage; Pvt banks
are safer bet in current deteriorating macro-economic environment
We expect PSU banks which are yet to migrate (fully) to automated NPA recognition
system are likely to witness higher slippage and hence have to set aside higher provisions
during Q2FY12. Many banks are also likely to spring negative surprises by
recognizing higher slippage in the agriculture segment.
On the other hand, we have seen that, 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.
During Q2FY12, we are expecting higher restructuring of loans as many segments
like infrastructure, textiles, mining & MFIs etc are facing stress. This would be more
specific to banks having higher exposure to these segments. However, we don't
foresee any systemic risk arising out of this.
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