Quick economic recovery to aid lenders’ profits

Lenders, including non-banking finance companies (NBFCS), are proving to be one of the strongest anchors of March quarter (Q4FY21) earnings. Aided by last year’s low base, better-than-expected economic recovery, and prudent provisioning in the first nine months of 2020-21 (9MFY21), net profit, on average, analysts estimate a sharp surge while loan book may expand in the high single digits.

However, headwinds in terms of mark-to-market losses from rising bond yields and likely increase in slippages may restrict bottom line.

“In Q4, average bank credit growth remained muted at 6-7 per cent year-on-year (YOY). Therefore, we expect private banks under our coverage to report an average of 10 per cent YOY growth in credit compared with an average of 5 per cent for public sector banks (PSBS),” global brokerage HSBC said.

Analysts at Prabhudas Lilladher expect the overall lending growth to be supported by retail, credit to public sector undertakings (PSUS) and agri (mainly for PSBS). Parts of retail remain steady with housing loan growth at 10 per cent YOY, credit cards at 4-5 per cent YOY, and vehicle loans at 9 per cent, it said. On deposits, the sector continues to see strong flow with growth accelerating to 12 per cent YOY.

Given this, the aggregate net interest income growth is pegged at 15 per cent YOY. On the profitability front, the brokerage pegs operating profit growth at 15 per cent YOY with 12 per cent YOY for private and 19 per cent for PSBS.

Individually, State Bank of India (SBI) is estimated to report a sharp upswing in net profit of 268 per cent YOY, while ICICI Bank is seen clocking a growth of 251 per cent YOY, the highest earnings growth among major public and private sector banks, respectively. Axis Bank is seen turning to black with a net profit of ~1,970 crore, compared with a net loss of ~1,388 crore a year ago. And, HDFC twins are seen posting 20-plus per cent increase in earnings.

As regards NBFCS, Sharekhan says normalisation of business, increased mobility indicators augur well, and hence disbursements and collections should normalise.

The brokerage is factoring in a 37 per cent YOY growth in aggregate net profit with Bajaj Finance, Cholamandalam Investment, and M&M Financial outperforming their peers.

With the second wave of Covid-19, the growth outlook and asset quality performance will need to be monitored.

“We expect incremental slippages (non-annualised) of 1-2.5 per cent (over 9MFY21 proforma) primarily flowing in unsecure retail, bus operator segments, etc thereby, driving NPAS sequentially up,” ICICI Securities said.

HDFC Securities has retained its FY22/23 estimates, despite the second wave, as it believes the current estimates around credit growth and asset quality already factor in potential hurdles to recovery.