A healthy rise in loans, double-digit growth in operating profit, and leaner provisioning are expected to help ICICI Bank to report over 300 per cent YoY jump in profit after tax (PAT) for the March 2021 quarter (Q4).
Kotak Institutional Equities (KIE) expects the lender’s provisioning to decline by a striking 64.3 per cent YoY to Rs 2,129 crore. In Q4FY20, the lender had set aside Rs 5,967 crore owing to the uncertainty due to the Covid-19 pandemic. For the December 2020 quarter, the lender had made provisions of Rs 2,742 crore.
“We expect provisions to slide down to normal levels and the bank is likely to use some of the Covid-19 provisions in the early part of this quarter. We are building slippages of 4 per cent but we see a solid commentary on recovery to normalised levels of their loan book from an asset quality perspective,” KIE noted.
Brokerages anticipate operating or pre-provision profit to range between Rs 8,500 crore and Rs 9,400 crore, a significant YoY rise from Rs 7,390 crore; Q3FY21 operating profit was Rs 8,820 crore.
While KIE expects loan book to grow 13 per cent YoY, Edelweiss believes the growth may be contained below 10 per cent. The loan book stood at Rs 6.45 trillion in Q4FY20 and at Rs 6.99 trillion at the end of Q3FY21. Deposits can show strong traction with flows coming to bigger private players and PSUs.
Against this backdrop, net interest income (income received minus interest paid) is estimated to grow up to 18 per cent YoY to Rs 10,560 crore. Net interest margin (NIM) may stay around 3.6-3.7 per cent.
On the asset quality front, while NPA ratios are seen improving by 20-60 basis points on a YoY basis, these may worsen sequentially on the back of higher slippages as the Supreme Court’s stay on NPA classification stands vacated. Sequentially, MOSL estimates the gross NPA ratio to worsen from 4.4 per cent to 5.5 per cent, and the net NPA ratio from 0.6 per cent to 1.2 per cent.
The management’s commentary on asset quality, coupled with movement in stressed loans, given the rising Covid-19 cases, will be keenly watched. “The key monitorable will be downgrades to BBB and below list,” opined Edelweiss.
Axis Bank
Analysts are expecting upwards of 50 per cent sequential growth in net profit of Axis Bank in the March quarter of FY21, driven by lower provisions and an improvement in total income. Last year, during the same period, the bank had reported a net loss of Rs 1,388 crore.
However, there are mixed views among brokerages on slippages (loan accounts turning bad). While ICICI Securities expects the run rate of slippages to be lower in Q4FY21 than the December 2020 quarter, Emkay Research expects elevated slippages, including proforma for Q3, and higher corporate stress.
While gross slippages appeared marginal in Q3 due to asset classification standstill, because of an earlier interim order by the Supreme Court, if considered according to Reserve Bank of India’s income recognition and asset classification (IRAC) norms, slippages would have been Rs 6,736 crore. The bank had stated that roughly 83 per cent of Q3 slippages were from its retail portfolio.
On a YoY basis, gross and net non-performing asset (NPA) ratios are estimated to decline 20-40 basis points, but sequentially analysts see them rising by 50-130 basis points.
Edelweiss Research in its report has said loan momentum will be tepid as demand remains weak and lenders are risk-averse.
Brokerages are estimating, on average, growth of 11 per cent in the bank’s net interest income. “The bank is not chasing growth and lending to the right people at the right price,” said ICICI Securities. The bank has already taken the impact of interest reversal on proforma slippages in Q3FY21. Hence, margins are likely to be stable in Q4FY21. Higher provisions in earlier quarters, analysts say, will help contain credit cost in Q4.
The bank’s provision bill in Q4FY21 is seen ranging between Rs 3,650 crore and Rs 4,150 crore, which is lower compared to Rs 4,604 crore in Q3. After the sharp surge in provisions to Rs 7,730 crore in Q4FY20, the figure ranged between Rs 4,400 crore and Rs 4,600 crore in the first three quarters of FY21.
Those are MOSL said slippages and restructuring of BB and below rated loans were key monitorables. Edelweiss said collections in different segments need to be monitored.
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