Banking & Financial Services Sector | Q3FY15E Results Preview :: IndiaNivesh

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Sluggish credit growth likely to continue:
Loan growth is expected to be muted at 12-13% in FY15 largely led by slowdown in
corporate lending. However, Retail, SME and working capital loans are expected to
be the key growth drivers for industry in the near term. For our coverage universe,
we expect credit growth to remain above industry average, mainly led by private
sector banks. As per the latest release by RBI, advances are said to have grown by
10.6% y-o-y as on December 12, 2014 (vs 16.6% y-o-y growth in 2013). However,
private sector banks and NBFCs are likely to grow at healthy rate majorly driven by
retail loan book.
The aggregate NII for our banking coverage universe is expected to increase by 13%
y-o-y with private banks outperforming. NII growth for private sector banking
universe is likely to remain healthy at 20% y-o-y while Public sector to grow at 9%
y-o-y. From our coverage universe, 1) Axis Bank, HDFC Bank, ICICI bank, DCB Bank
and Federal Bank are likely to maintain above industry average loan growth majorly
driven by retail advances and 2) Bajaj Finance likely to continue with its robust
performance in terms of Assets Under Management (AUM) growth with increase of
32% y-o-y followed by Capital First with 30% y-o-y increase in Q3FY15E.
Asset quality pain likely to ease for PSBs while private sector
banks and NBFCs better placed:
Asset quality continues to be the major problematic are and cause of concern for
banks, especially public sector banks. PSU bank’s fresh delinquencies are likely to
stabilize though not significantly. However aggressive recovery and upgradations
are likely to help in reported numbers to look better. Retail financing NBFCs are
likely to remain better than banks in terms of asset quality, however stress is likely
to continue for asset and infra financing NBFCs.
Margins to remain flattish sequentially for the entire industry:
The deposit growth has continued to be faster than the loan growth, resulting into
sufficient liquidity in the system. Further most of the banks under coverage have
reduced their deposits rates in selective buckets which should help them in reducing
their cost of funding. Moreover, the decline in G sec yields and wholesale rates in
Q3FY15 is likely to benefit NBFCs and also to banks having higher share of bulk
deposits. However, the lending yields are believed to be under pressure on account
of lower incremental loan growth. Considering the above factors, we expect NIMs
to remain stable on q-o-q basis. NII growth for state-owned banks is expected to be
at 13% y-o-y (3% q-o-q), while private banks’ growth is expected to be at 15-17%
y-o-y.
Treasury income to show moderate growth:
We expect treasury profits to remain healthy for banks under our coverage. Our
discussion with management of banks under coverage indicates healthy treasury
gains in Q3FY15E as yields have come off by 40-50 bps in last 3 months. However
most of the banks are likely to book part of the gains in treasury as they are
expecting yields to come down further. Further banks with high equity portfolio
can benefit from positive capital market’s performance during Q3FY15. Fee income
is likely to remain muted on account of lower loan disbursement.

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