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India Equity Research Reports, IPO and Stock News
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Banks/Financial Institutions
India
Focus shifts to restructuring from slippages. We see sharper focus on restructured
loans in 3QFY12E than on slippages/increases in gross NPLs. Reported NPLs are likely to
remain sequentially stable generally, and in the case of a few banks, surprisingly
positive. Margins are expected to remain healthy but loan growth is likely to moderate
for all banks. NBFCs will continue to drive strong loan growth though NIMs are close to
their nadir, in our view. Most preferred picks: ICICI Bank and Federal Bank among
private banks, PNB among public banks, IDFC and Mahindra Finance among NBFCs.
Restructured loans to increase gradually; NPLs to remain flat qoq
We see focus shifting to restructured loans in the current quarter, especially with large loanadditions
to the CDR cell and reports of various SEBs requesting a revised, elongated payment
schedule. Lower slippages and better recovery trends will keep overall gross NPLs flat qoq. We
expect select banks to report a decline in gross NPL ratios as the focus has shifted to asset quality
from growth. Apart from a 2% provision for fresh restructured loans we don’t see a major impact
on earnings in the quarter from loan-loss provisions.
Flat earnings yoy led by 4% earnings decline for public sector banks
We expect yoy earnings to remain flat (5% qoq) for banks mainly due to weak earnings growth of
public sector banks. Besides, pressure on revenue growth (NII and fee income) is expected to
increase marginally for all banks. We expect 4% yoy (5% qoq growth led by lower provisioning)
decline in earnings for public sector banks and private banks to grow by 15% yoy (6% qoq). Non
interest income is expected to be subdued due to weak fee-income growth. We expect NII growth
of 10% yoy (9% for public sector banks and 15% for private banks). We expect operating
expenses to be stable and the equity portfolio will need higher MTM provision compared with the
bond portfolio in 3QFY12E.
NBFCs are likely to report divergent trends in earnings. While loan growth will remain high, NIMs
are expected to be under pressure and are now close to their nadir. We expect SBI in the public
sector and most private sector banks to post earnings growth of over 12% yoy, aided by lower
base earnings. Stable NIMs, moderate loan growth (about 17%) and capital gains on the sale of
stake in the AMC business will drive IDFC’s earnings growth. Mahindra Finance is likely to deliver
28% growth in core earnings due to strong business traction.
NIMs to remain stable qoq; muted YTD loan growth though alternative channels have increased
We expect NIMs to remain stable in 3QFY12E as banks continue to enjoy pricing power and
interest rates for wholesale deposits have been stable over the past two quarters. We expect NIMs
to be lower by about 10 bps qoq. Loan deposit ratio has been stable at about 74%. YTD growth
in loans for FY2011 (April – December 16, 2011) has been muted at 8% (4% qoq) though
headline growth appears to be higher at about 17% yoy. We note that banks’ investments in CPs
and corporate debentures have increased by 40% and 8% qoq respectively.
Most NBFCs are likely to report a sharp yoy decline in NIMs (50-80 bps). On a qoq basis, we expect
NIMs to decline by 10-20 bps as the rise in interest rates is reflected in loan assets. Incremental
borrowing costs have declined, especially for short to medium term borrowings. Lower competitive
intensity across products and a likely decline in interest rates in the system in 1QFY13E reduces
NIM pressure over the next few quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks/Financial Institutions
India
Focus shifts to restructuring from slippages. We see sharper focus on restructured
loans in 3QFY12E than on slippages/increases in gross NPLs. Reported NPLs are likely to
remain sequentially stable generally, and in the case of a few banks, surprisingly
positive. Margins are expected to remain healthy but loan growth is likely to moderate
for all banks. NBFCs will continue to drive strong loan growth though NIMs are close to
their nadir, in our view. Most preferred picks: ICICI Bank and Federal Bank among
private banks, PNB among public banks, IDFC and Mahindra Finance among NBFCs.
Restructured loans to increase gradually; NPLs to remain flat qoq
We see focus shifting to restructured loans in the current quarter, especially with large loanadditions
to the CDR cell and reports of various SEBs requesting a revised, elongated payment
schedule. Lower slippages and better recovery trends will keep overall gross NPLs flat qoq. We
expect select banks to report a decline in gross NPL ratios as the focus has shifted to asset quality
from growth. Apart from a 2% provision for fresh restructured loans we don’t see a major impact
on earnings in the quarter from loan-loss provisions.
Flat earnings yoy led by 4% earnings decline for public sector banks
We expect yoy earnings to remain flat (5% qoq) for banks mainly due to weak earnings growth of
public sector banks. Besides, pressure on revenue growth (NII and fee income) is expected to
increase marginally for all banks. We expect 4% yoy (5% qoq growth led by lower provisioning)
decline in earnings for public sector banks and private banks to grow by 15% yoy (6% qoq). Non
interest income is expected to be subdued due to weak fee-income growth. We expect NII growth
of 10% yoy (9% for public sector banks and 15% for private banks). We expect operating
expenses to be stable and the equity portfolio will need higher MTM provision compared with the
bond portfolio in 3QFY12E.
NBFCs are likely to report divergent trends in earnings. While loan growth will remain high, NIMs
are expected to be under pressure and are now close to their nadir. We expect SBI in the public
sector and most private sector banks to post earnings growth of over 12% yoy, aided by lower
base earnings. Stable NIMs, moderate loan growth (about 17%) and capital gains on the sale of
stake in the AMC business will drive IDFC’s earnings growth. Mahindra Finance is likely to deliver
28% growth in core earnings due to strong business traction.
NIMs to remain stable qoq; muted YTD loan growth though alternative channels have increased
We expect NIMs to remain stable in 3QFY12E as banks continue to enjoy pricing power and
interest rates for wholesale deposits have been stable over the past two quarters. We expect NIMs
to be lower by about 10 bps qoq. Loan deposit ratio has been stable at about 74%. YTD growth
in loans for FY2011 (April – December 16, 2011) has been muted at 8% (4% qoq) though
headline growth appears to be higher at about 17% yoy. We note that banks’ investments in CPs
and corporate debentures have increased by 40% and 8% qoq respectively.
Most NBFCs are likely to report a sharp yoy decline in NIMs (50-80 bps). On a qoq basis, we expect
NIMs to decline by 10-20 bps as the rise in interest rates is reflected in loan assets. Incremental
borrowing costs have declined, especially for short to medium term borrowings. Lower competitive
intensity across products and a likely decline in interest rates in the system in 1QFY13E reduces
NIM pressure over the next few quarters.
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