Banks may post 5.5% rise in third quarter net profit

Still in the shadow of the Covid-19 pandemic, listed commercial banks may report a 5.5 per cent increase (year-on-year or YOY basis) in net profit for the third quarter ended December 2020 (Q3 of FY21).

Their net revenues could expand by just about 1.8 per cent in the reporting period, according to Bloomberg estimates.

The estimates indicate that private sector lenders will show better performance than public sector banks (PSBS). Many PSBS are still occupied in managing the process of amalgamation which set in on April 1, 2020. The sharp cuts in interest rates, restructuring and the challenges of deploying huge surplus liquidity will have a bearing on performance. The scale of rejig has been less than earlier estimated, partly reliving banks from the burden of provision and surge in bad loans, bankers said.

According to ICRA, the loan restructuring volume is likely to be lower at 2.54.5 per cent of advances than the initial estimates of 5-8 per cent. Asset quality pressure for banks may moderate with net non-performing assets (net NPAS) likely to fall to 2.5 per cent by March 2022 from the estimated 3.1 per cent for March 2021.

A senior banker pointed out that the asset quality numbers are currently masked due to the Supreme Court verdict, which has placed temporary ban on recognising some slippages as NPAS after completion of the moratorium period.

The business (credit offtake) was definitely better sequentially (over the second quarter). But effect of the economic disruption caused by the pandemic is huge.

This quarter (Q3 of FY21) coincided with the festive season, giving push to retail credit. Also, credit to micro, small and medium enterprises (MSMES) got a traction from government guaranteed schemes. Yet activity remains in the slow lane when compared to credit growth last year. Bank credit rose by 6.1 per cent (YOY basis) up to December 18, 2020. This is less than 7.1 per cent a year ago, according to Reserve Bank of India data.

Domestic brokerage Motilal Oswal, in a preview of Q3 performance, said higher credit costs, coupled with suppressed credit growth, are likely to put pressure on near-term earnings of private lenders. Edelweiss said with a near consensus among banks to err on the side of caution in rolling out restructuring benefits, Q3 of FY21 marks the end point of the apparent calm in the Covid-19 crisis.