NPA Clean-up to Re­flect on Banks’ Earn­ings

In­vestors to fo­cus on how much the prob­lem has been dealt with

The Economic Times - - Money - Joel Re­bello & Saloni Shukla Fi­nan­cial Es­ti­mates

Mum­bai: Banks’ March-quar­ter earn­ings may be their worst in years asRe­serveBankof In­dia’s(RBI)forced bad­loan­srecog­ni­tionerod­edearn­ings de­spite a boost from trea­sury gains. In­vestors, how­ever, will keenly watch for guid­ance on whether the in­dus­try is done with the clean-up.

State-run banks will bear the brunt of these pro­vi­sions, bar­ring Bank of Bar­oda which went for a sweep­ing pro­vi­sion­ing in the De­cem­ber quar­ter. But the pic­ture is not pretty at pri­vate lenders such as ICICI Bank and Axis Bank which went overboard with in­fra­struc­ture lend­ing. HDFC Bank may yet again stand above the rest, and prob­a­bly show in con­trast that its cor­po­rate loans book grew to record when oth­ers are rein­ing in.

While it may be a some­time be­fore HDFC Bank gets back to its ha­bit­ual 30% earn­ings growth, an­a­lysts are ex­pect­ing it to ac­cel­er­ate its fo­cus on cor­po­rate lend­ing which is es­ti­mated to get to ₹ 1 lakh crore.

The in­dus­try as a whole may see its prof­its col­lapse with state-run banks’ net profit crash­ing 87% in the March quar­ter, while pri­vate banks re­port 5 % g rowth, f o r e c a s t s Kot a k In­sti­tu­tional Eq­ui­ties. Rev­enue for pri­vate banks may ad­vance 15%, and for state banks it may fall 3%, it said.

“Iwould­stil­l­keep­aneyeonas­setqual­ity, pro­vi­sions and the man­age­ment’s guid­ance on credit costs,’’ says Man­ish Ost­wal, an­a­lyst at Nirmal Bang Se­cu­ri­ties said. “But more im­por­tant

Axis Bank





PNB will­be­guid­ance­fornextfis­cal,par­tic­u­larly growth. Some state-owned banks like SBI, Ca­nara Bank and BoB have tak­en­the­p­ainand­could­bere-rated.”

RBI al­lowed banks to make half the pro­vi­sions aris­ing due to Asset Qual­ity Re­view in Q3 while the re­main­ing pro­vi­sions are likely in Q4.

Many pub­lic sec­tor banks re­ported record­loss­esintheDe­cem­berquar­ter. Losses at Bank of In­dia, In­dian OverseasBank,UCOBank,Syn­di­cate Bank, Cen­tral Bank of In­dia, Dena Bank, Al­la­habad Bank, State Bank of Pa­tiala, IDBI Bank and Bank of Bar­oda to­gether added up to a huge ₹ 12,756 crore in the quar­ter.

Bank credit growth has fallen be­low 10%in2015-16,th­elow­est­in18years.But one­sav­ing­grace­could­betheirtrea­sury in­come where a surge in bond prices could help them buf­fer the losses from in­fra loans. “The 26-bps fall in 10-year G-Sec yields dur­ing the quar­ter should re­sult in healthy trea­sury in­come. Mar­gin­swill­re­main­un­der­pres­sure­for PSUbankswith­sig­nif­i­cant­back­ended growthinQ4,’’saysS­parkCap­i­tal.

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