ƒBanking and financial institutions ƒ Sluggish credit traction to impact NII; NIMs to report stable trend :Q3FY15 Result Preview : ICICI Securities, report

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Banking and financial institutions
ƒ Sluggish credit traction to impact NII; NIMs to report stable trend
Credit growth for the industry has continued to stay weak at 10.6% YoY
by mid-December 2014. Our coverage universe is expected to deliver
credit growth of 13% YoY to | 3634724 crore (~60% of the total
industry credit) led by healthy traction in private banks (expect growth
of 17% YoY). Owing to ~50 bps QoQ decline in wholesale rates &
deposit rate cuts taken by some banks, we expect NIMs to stay steady
QoQ with positive bias. However, weak credit growth and declining Gsec
yields will impact NII growth, which is expected to be at 10% YoY
for the entire coverage mainly dragged by PSU banks that are expected
to clock merely 5% YoY increase in NII.
ƒ Asset quality stabilising; Fall in G-sec yields to support PAT of PSUs
On NPA front, private banks are unlikely to deliver any major negative
surprise. However, for PSU banks, respite still seems a few quarters
away. In Q3, slippages for PSU banks are expected to remain broadly at
Q2 levels though we expect lower slippages for PNB, Syndicate Bank
and Dena Bank. On a closing GNPA basis, net addition may be lower
owing to higher upgradations and write-off. The positives for PSU banks
in Q3 are the 60 bps fall in G-Sec yields, benefiting via a reversal in
MTM provisions. We believe trading gains on the bond portfolio will
increase and be higher in FY16 also. We expect banking PAT to
increase 23% YoY to | 12513 crore. PSU bank’s PAT growth at 28%
YoY appears higher due to lower base last year on higher provisions.

Company specific view (Banks)
Banks Remarks
Bank of Baroda For Bank of Baroda, we expect credit growth to moderate to 12.0% YoY, 2.3% QoQ,
slightly above industry growth. NII growth of 12.6% YoY to | 3441 crore is estimated.
We expect GNPA & NNPA ratio to rise 10 bps QoQ to 3.4% & 1.8%, respectively.
Provisions are expected to be lower than | 890 crore seen in Q2FY15. Fall in G-Sec
yields in Q3 will enable lower MTM provisioning. Owing to lower base last year, PAT
traction seems healthy at 17% YoY to | 1229 crore
Bank of India Asset quality pressures are expected to moderate with net addition being minimal
and GNPA/NNPA ratio being stable at 3.47%, 2.24%. Profit is seen surging 46% YoY
and 11% Q to | 855 crore led by lower provisions of | 880 crore vs. | 1403 crore
YoY. Credit growth is expected to moderate from 19% YoY to 15% YoY sequentially
Dena Bank A drop in G-sec yields may provide good treasury gains & may partly offset pressure
on PAT due to excess NPA provisions. Credit, deposit growth are seen at 13%, 14%
YoY, respectively. NII growth may moderate to 2.8% YoY with PPP flat at | 76 crore.
PAT is, hence, expected to grow a mere 6% YoY to | 72 crore
Punjab National
Bank
Reversal in investment book MTM provision will support provisions and boost other
income on higher trading gains. Credit growth is expected to remain subdued at
10.6% YoY to | 360663 crore. GNPA net addition may be nominal ~| 400-500 crore
with RA additions contained. Overall profit is seen growing 1% YoY and 38% QoQ to |
763 crore
State Bank of
India
Consistent stability in absolute GNPA in last three quarters may continue with net
additions seen at ~| 1500 crore only. NII growth may be subdued at 3.8% YoY to
|13120 crore with credit growth up 11% YoY. Strong trading gains may assist other
income at | 9190 crore. MTM reversals on treasury may help maintain lower
provisions. Overall PAT may grow 43.7% YoY to | 3213 crore
Syndicate Bank Loan growth is estimated to moderate in Q3FY15 to ~12% YoY (flattish QoQ) to |
176000 crore. Slippages are estimated to be lower than | 1500-1600 range seen in
Q1 and Q2. Margins may stay steady at 2.6%. Decline of ~60 bps in G-Sec yields
during Q3FY15 should help the bank lower MTM provisioning and/or improve other
income traction. PAT of | 351 crore is estimated, down 7.4% YoY
Axis Bank Loan traction is expected to be maintained above industry levels at 16% YoY to |
246253 crore. However, we expect NIMs to moderate to ~3.85% in Q3FY15 (which
is still healthy) owing to the impact of 10 bps base rate cut in October 2014. Asset
quality is expected to hold up well with fresh RA and slippages being in the guided
range of | 1600 crore. An account of ~| 200 crore in the telecom sector may slip
into NPA in Q3
City Union Bank Credit growth is seen picking up though it still remain subdued at 10% YoY to |
17428 crore. We expect no surprise on asset quality after the surge seen in the last
two quarters. Hence, provisions may be maintained ~| 51.9 crore from | 54.6 crore
QoQ. We expect NII to grow at 8.3% YoY to | 213 crore and estimate profit will grow
~6% QoQ and 11% YoY to | 98.9 crore. Higher trading gains are seen pushing up
other income to | 94 crore vs. | 65 crore in Q3FY14
DCB Bank Healthy NII growth of 28% YoY to | 121 crore is estimated on the back of healthy
credit traction of 26% YoY to | 9274 crore and healthy NIMs of ~3.7 to 3.75%. QIP of
| 250 crore in October 2014 may help support margins. PAT traction of 20% YoY to |
43.7 crore is estimated
HDFC Bank Credit growth is still seen strong at 18% YoY to | 350182 crore, higher than industry
with growth led by retail. NII growth of 23% YoY & 3.5% QoQ may ensure NIMs are
maintained at 4.4%. We have lowered provisions to | 350 crore vs. run rate of | 450
crore in last two quarters. Other income may remain strong led by trading profits,
leading to profit growth at 20% YoY to | 2785 crore
Federal Bank Credit growth for the bank may moderate to 13.5% YoY (down 2.5% QoQ) in Q3FY15
post 15% YoY seen in Q2FY15. Margins may stay flattish sequentially at ~3.35%.
Slippages in the retail segment are expected to be under control. However, slippages
from the corporate segment should be watched. No major restructured pipeline is
expected. PAT of | 253 crore is estimated, up 10% YoY
Source: Company, ICICIdirect.com Research

Company specific view contd. (Banks)
Jammu &
Kashmir Bank
Credit growth is expected to moderate at 8% YoY to | 46875 crore (2% QoQ) while
NIM is stable at 4.2%. The bank may make | 70-80 crore provision on flood led
restructured accounts (RA). PAT is expected to decline 35% YoY to | 209 crore on
moderate NII growth and higher provisions compared to last year. The management
expects one big real estate account(~ | 400 crore) to get upgraded in the current
quarter
Kotak Mahindra
Bank
Credit growth is seen lower than Q2FY15 at 17.7% YoY with deposit growth
maintained at 28% YoY. Except NIM being stable, trading profits may be better
boosting other income. Asset quality is expected to be in control with provisions
contained at | 50 crore. PAT may grow 27% YoY to | 432.8 crore
South Indian
Bank
Expect moderate NII growth of 4.6% YoY largely due to slower credit growth at 8%
YoY to | 36426 crore and a stable NIM to of 2.8%. Asset quality may remain stable
with GNPA at ~1.5% of credit at | 580 crore. FITL provision of | 25 crore may erode
profits in the current quarter although trading gains can boost other income. PAT,
therefore, is expected to decline 21% YoY to | 110 crore mainly due to moderate
business growth. Pick-up in credit is a key factor to watch
Yes Bank Advances may grow ahead of the industry at 25% YoY to | 63270 crore. Deposits
may grow 20% YoY to | 81733 crore with higher CASA at 23% (Q2FY14: 20%). NIMs,
therefore, may remain steady at 3.2% on improved CASA and lower CD rates.
Treasury gains, as guided by the management, may be used up to buffer
provisioning. PAT, therefore, is expected to grow healthy 13% QoQ and 31.7% YoY to
| 548 crore
IndusInd Bank IndusInd bank is expected to maintain its healthy trend in NII (21% YoY to | 882
crore) and PAT (29% YoY | 449 crore) owing to healthy traction in advances (22%
YoY), strong margins and steady asset quality. We expect disbursements in the CV
financing segment to improve in Q3FY15, which will support margins that are
estimated to be in the ~3.6-3.7% range
Source: Company, ICICIdirect.com Research

Company specific view (NBFCs)
IDFC Loan book may stay flat ~0.3% YoY leading to stable NII at | 669 crore. Expect no
surprise in NPAs with restructured assets continuing the fresh addition. Margin
moderation is seen in Q2FY15 to stay ~3.8%. PAT is seen declining 13.8% YoY and
rising 2.3% QoQ to | 430.9 crore
LIC Housing
Finance
Decline in money market rates may help improve LIC HF's margins in Q3. Further,
improving disbursements to high yielding segments like corporate loans and loan
against property should further support NIMs. We expect NIMs to increase to 2.3%
from 2.23% in Q2. Credit increase of 17.8% YoY is estimated at | 101762 crore led by
the retail segment. NII of | 551 crore (up 20% YoY) is estimated. Asset quality is
expected to stay steady
Reliance
Capital
Strong pick-up in performance of AMC, general insurance, in Q2FY15 to continue.
Lower equity capital gains are expected at | 37 crore vs. | 72 crore in Q2FY15, to
lead to revenue declining 4% QoQ and growth of just 7% YoY to | 2026 crore. PAT is
expected to grow 20% YoY to | 200 crore. Commercial finance consistently earns
PBT of over | 90 crore per quarter
HDFC Ltd Expect credit traction of 15.5% YoY to | 221453 crore led by individual loan segment.
Corporate book may stay sluggish. Asset quality is expected to remain under control.
Reported NIM is expected to be steady QoQ at ~4%. PAT growth of 11% YoY to |
1423 crore is estimated. Dividend income of ~| 100 crore is expected while profit
on sale of investments would be ~| 110 crore owing to stake sale in HDFC Life
PTC India
Financials
For PFS, we expect healthy growth in sanctions as well as disbursements. Share of
renewable energy loans is expected at 35% with loan book expected to grow at 14%
QoQ to | 6300 crore. Loan growth may aid higher fee income also. Last year, the
same quarter PFS had booked | 82 crore on sale of investment. Excluding that, PAT
may grow 165% YoY to and | 65 crore, respectively
Source: Company, ICICIdirect.com Research


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