BANKING & NBFCS Outlook: :Q4FY12 RESULTS PREVIEW :Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight10042012.pdf

BANKING & NBFCS
Outlook: Neutral
 During Q4FY12, net income for Banks & NBFCs under our coverage is expected to register a strong growth (39.2% YoY), mainly on back of low
base (SBI reported weak earnings during Q4FY11). Our PSU banking universe is likely to grow faster at 71.9% (ex-SBI: decline of 4.2%), while
private sector banks under our coverage are likely to grow at 21.3%.
During the same period, our NBFC universe is likely to witness marginal
growth in net income due to subdued YoY growth for HDFC, LIC Housing and STFC.
 Credit growth came at 17.1% YoY (as on March 23, 2012), marginally
higher than witnessed during last few months, though it remained
lower than 21.5% growth witnessed a year ago. However, disappointment came on the deposit mobilization front - deposit growth for the
system came down to 13.4% (as on March 23, 2012) and explains the rationale of many banks hiking their deposit rates to garner more deposits.
 We expect marginal compression in NIM (5-10bps QoQ) during Q4FY12,
as banks are almost through with the last leg of deposit re-pricing; tight
liquidity environment has led to spike in wholesale deposit rates during
the end of Q4FY12. However, we believe full impact of tight liquidity
condition to be reflected in Q1FY13.
 We believe asset quality pressure to persist even though banks have already shifted to system based NPA recognition system. We expect restructured book to rise especially on corporate book side as there has
been large addition to the CDR in recent times. However, banks are likely
to report higher recovery/upgradation as banks are already through with
the transition exercise.
 Although 10-Yr G-Sec yield declined during the quarter from 8.57% at the
end of Q3FY12 to 8.13% (beginning of February), it moved up sharply
during the fag end of FY12 to close at 8.54% and hence banks are likely
to report marginal MTM depreciation on their investment book. 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.
 Top Picks: HDFC Bank, ICICI bank, BoB, IDFC and M&M Finance
Core earnings expected to grow at 20.7% for banks & NBFC under
our coverage; net income growth is likely to be much stronger on
low base (subdued performance of SBI during Q4FY11)