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● Earnings growth at Indian financials is likely to moderate in 2Q12
(11% YoY, 8% for govt., 22% for pvt.) as revenue momentum is
slowing and likely continued high provisioning at some govt banks.
● Loan growth was flat QoQ (19% YoY) in the quarter leading to
moderation in revenue growth. Treasury income should also be
weak on account of rising yields and weak equity markets.
● However, margins that have been under pressure past two
quarters should tick up 10 bp QoQ (-30 bp YoY) as banks took an
aggressive 50-75 bp lending rate hike this quarter while wholesale
and deposit rates were flat.
● Investor focus from 2Q12 on will be on asset quality. We expect
the stress to be visible in rising restructured assets and elevated
slippages at govt. banks. Low retail delinquencies should help a
42% YoY drop in prov. in private, while it rises 25% in govt banks.
● Axis (QoQ rise in NIMs) and BOB (continued high profitability) are
preferred plays around results. ICICI’s profitability is likely to be
under pressure as loan and fee growth decelerate. Asset growth is
likely to sharply decelerate at Yes & IDFC. Maintain Underweight.
Revenue momentum to slow
With investment activity slowing down and retail demand moderating,
sequential loan growth in 2Q12 remained flat and YoY loan growth
decelerated to 19%. We expect FY12 loan growth to moderate to 17-
18% levels and banks to likely to revise their growth guidance
downwards in this earnings season. The slowdown in lending activity
should also reflect in fees particularly from the corporate segment
which are driven by approvals and syndication fees. We therefore
expect moderation in revenues and these to lag asset growth.
Margins to witness a ~10 bp QoQ rise
Margins that have been under pressure past two quarters should tick
up 10 bp QoQ (-30 bpYoY) as banks took an aggressive 50-75 bp
lending rate hike in 2Q12 while deposit rates were flat. With a lack of
credit demand improving liquidity, wholesale rates have eased this
quarter. Therefore, despite the term deposit re-pricing, we expect
margins to witness a 10 bp QoQ rise in 2Q12. Among private banks,
NIMs are likely to be flat QoQ at ICICI, HDFC Bank while Axis, IDFC
and Yes Bank are likely to witness a 10-15 bp QoQ improvement.
Mixed asset quality trends
We expect overall loan provisions to be up 6%YoY. However, with low
retail delinquencies, provisions at private banks are likely to be down
42% YoY. However, it is likely to remain elevated at govt banks (+25%
YoY—PNB, BOI, Union move to system-based NPL recognition).
Slippages at SBI are likely to be high though may moderate from the
past two quarter highs (slippages of 3.1-3.3%). Restructured assets
are expected to rise highlighting increased asset quality stress.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Earnings growth at Indian financials is likely to moderate in 2Q12
(11% YoY, 8% for govt., 22% for pvt.) as revenue momentum is
slowing and likely continued high provisioning at some govt banks.
● Loan growth was flat QoQ (19% YoY) in the quarter leading to
moderation in revenue growth. Treasury income should also be
weak on account of rising yields and weak equity markets.
● However, margins that have been under pressure past two
quarters should tick up 10 bp QoQ (-30 bp YoY) as banks took an
aggressive 50-75 bp lending rate hike this quarter while wholesale
and deposit rates were flat.
● Investor focus from 2Q12 on will be on asset quality. We expect
the stress to be visible in rising restructured assets and elevated
slippages at govt. banks. Low retail delinquencies should help a
42% YoY drop in prov. in private, while it rises 25% in govt banks.
● Axis (QoQ rise in NIMs) and BOB (continued high profitability) are
preferred plays around results. ICICI’s profitability is likely to be
under pressure as loan and fee growth decelerate. Asset growth is
likely to sharply decelerate at Yes & IDFC. Maintain Underweight.
Revenue momentum to slow
With investment activity slowing down and retail demand moderating,
sequential loan growth in 2Q12 remained flat and YoY loan growth
decelerated to 19%. We expect FY12 loan growth to moderate to 17-
18% levels and banks to likely to revise their growth guidance
downwards in this earnings season. The slowdown in lending activity
should also reflect in fees particularly from the corporate segment
which are driven by approvals and syndication fees. We therefore
expect moderation in revenues and these to lag asset growth.
Margins to witness a ~10 bp QoQ rise
Margins that have been under pressure past two quarters should tick
up 10 bp QoQ (-30 bpYoY) as banks took an aggressive 50-75 bp
lending rate hike in 2Q12 while deposit rates were flat. With a lack of
credit demand improving liquidity, wholesale rates have eased this
quarter. Therefore, despite the term deposit re-pricing, we expect
margins to witness a 10 bp QoQ rise in 2Q12. Among private banks,
NIMs are likely to be flat QoQ at ICICI, HDFC Bank while Axis, IDFC
and Yes Bank are likely to witness a 10-15 bp QoQ improvement.
Mixed asset quality trends
We expect overall loan provisions to be up 6%YoY. However, with low
retail delinquencies, provisions at private banks are likely to be down
42% YoY. However, it is likely to remain elevated at govt banks (+25%
YoY—PNB, BOI, Union move to system-based NPL recognition).
Slippages at SBI are likely to be high though may moderate from the
past two quarter highs (slippages of 3.1-3.3%). Restructured assets
are expected to rise highlighting increased asset quality stress.
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