Q1FY13 Results Preview
Banking
Asset quality to remain key focus area
Incremental restructuring and future pipeline will continue to dominate the attention of investors even as other asset quality matrices are likely to remain largely stable. Relatively higher provisioning cost for PSBs led by slippages and incremental restructuring should lead to continuation of the divergent earnings performance trend among private banks and PSBs. HDFC Bank & ICICI Bank should lead the large caps while FED & CUB should fare relatively better among small cap banks.
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m Incremental restructuring: a key focus area: In the light of material moderation in economic activity, we expect asset quality trends to remain the key focus area for the next few earnings seasons. Incremental restructuring during Q1FY13 should continue to remain high despite significant restructuring in Q4FY12 already. Trend in CDR references and downgrades by rating agencies only reinforce our belief of further deterioration in asset quality matrices over the next couple of quarters. Besides the extent of stress build up, we look forward to management commentary on restructuring pipeline and general behaviour of loans.
m NIMs likely to remain largely flat QoQ: Given the strong pricing power aided by tight liquidity, we expect NIMs to remain flat sequentially. The benefit from easing in wholesale rates is likely to be offset by contraction in loan yields as most banks had tweaked lending rates during the quarter.
m MTM write backs may provide cushion: With the g-sec yields at the end of the quarter reflecting easing across maturities, banks (especially PSBs) should benefit from write-back of MTM provisions made on investments. In turn, this should provide some cushion to profitability against weaker core performance led by moderate credit growth and stiff credit costs. During the quarter, 1 yr g-sec yields have come off by 22 bps while 10yr yields have eased by ~35bps.
m NIMs likely to remain largely flat QoQ: Given the strong pricing power aided by tight liquidity, we expect NIMs to remain flat sequentially. The benefit from easing in wholesale rates is likely to be offset by contraction in loan yields as most banks had tweaked lending rates during the quarter.
m MTM write backs may provide cushion: With the g-sec yields at the end of the quarter reflecting easing across maturities, banks (especially PSBs) should benefit from write-back of MTM provisions made on investments. In turn, this should provide some cushion to profitability against weaker core performance led by moderate credit growth and stiff credit costs. During the quarter, 1 yr g-sec yields have come off by 22 bps while 10yr yields have eased by ~35bps.
m Base distortions: The low base effect (due to –ve one-offs) will help SBI and BoI report strong growth in bottomline. However, adjusting for these one offs private peers are expected to outpace PSBs in bottomline growth. Among the banks under our coverage, we expect HDFC Bank & ICICI Bank to lead the large caps from core earnings growth perspective while FED & CUB should fare relatively better among small cap banks.
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