Q3FY15 Banking Sector Preview :: HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Credit growth to be muted
Credit growth in the economy has not picked up in a major way and has remained muted at 10.6% y-o-y. Any recovery in the economy is yet to reflect in the lending activity. Lacklustre
credit growth and declining G-sec yields is expected to impact Net Interest Income growth year over year with more pressure likely on Public Sector Banks. However earnings growth
could be supported by higher treasury income as both long term and short term yields have softened significantly. Constrained by a large corporate exposure, lower capital adequacy and
low retail lending presence, public sector bank’s loan growth could moderate further. Within private banks, loan growth could be at a higher pace buoyed up by retail lending.
NIMs expected to be largely stable; Treasury gains to benefit bottom-line
NIMs could be largely stable or could marginally improve as cost of funds will likely benefit from lower short-term and deposit rates which have been tweaked by banks in anticipation of
rate cycle reversal. Banks are likely to benefit from higher treasury profit which banks may utilize prudentially to provide for revised pension assumptions.
Eye on recoveries with signs of NPA cycle bottoming out to be watched for
Most of the banks could continue to report slippages as it would take at least couple of quarters for the delinquencies to subside significantly. Andhra Pradesh loan waivers, J&K state
floods and relapse from restructuring remain an overhang. For private banks asset quality is expected to remain stable; however, there may be some increase in restructured pool for
corporate lenders. With regulatory forbearance on restructuring ending in March 2015, restructuring quantum is likely to remain high. However, RBI’s guideline on flexible structuring
eases concerns relating to a few stressed accounts.
NPA recoveries would be a key thing to watch out as any improvement here would suggest that the credit cycle has bottomed out. Higher impaired assets, low provisioning cover and
substantial treasury income would drive higher credit cost for public banks. For large private banks like ICICI Bank and Axis Bank, the impaired assets addition is expected to be in‐line
with the management’s guidance. Retail oriented private banks may continue to report muted delinquencies.
Q3FY15 could be an important quarter for the Banking sector as it could give signs of an improvement in the banking cycle if any. Earnings growth for PSU banks is expected to be
muted due to modest NII (lower credit growth plus stable/improving NIMs), staff expenses and elevated credit cost (though declining), though partially offset by better treasury
performance, which banks may use prudently to provide for revised pension assumptions. Incremental slippages are likely to be stable, while slippages from restructured book will
be a key monitorable. Private banks are expected to deliver a steady quarter, led by benign asset quality, stable to improving NIMs and rising market share. NBFCs are likely to report
better performance sequentially – largely a derivative of seasonally strong half. With RBI cutting repo rate by 25 bps to 7.75% sentiment in the sector has improved with expectations
of further rate cut being built up.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010794