 "BofA-ML sees PSBs' profit diving; private banks at stable")
Bank of America-Merrill Lynch in its earnings preview said banks are unlikely to deviate much from past. State-run banks are set to report decline in headline profits but private lenders will be reporting good numbers.
"We are likely to see state-run banks' earnings disappointing at net profit level with a decline of 5-35% y-o-y, as they are to provide for wage revisions, and many of them had tax reversals/write-backs in Q4 of last fiscal owing to higher provisions." it said.
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Also, "operating earnings for most state-run banks are to be largely flattish driven by better topline (flattish to 20% growth) being offset by lower non-interest income," BofA-ML report said.
On the other hand, "private banks are set to report net profit growth of 20-30% driven by retail lending,as most of them did not cut retail rates though their higher share in overall loan growth is mixed. Also, asset quality of most private lenders will be largely comfortable."
On State Bank, the report said, "the largest lender may surprise on volumes, recoveries, but margins will be weak, showing a 7-8% y-o-y decline in net profit due to higher wage provisions and decline in margins. However, key to watch for in SBI will be volume and recoveries trend."
Among other larger state-run banks-- PNB, BoB, BoI and Canara-- headline earnings are expected to be down by 5-25% owing to higher tax outgoes, while their operating profits may be flat to 25%. Only OBC may report headline profit growth in Q4, as base was weak due to higher NPLs, says the report.
Overall, the main data to watch out for will be slippages, margins and recovery trends. Among private players, HDFC Bank and ICICI are likely to report stable numbers, while Axis, Yes, IndusInd are key to watch, it adds.
The report sees no material deviations in the earnings
However, Axis may report a lower 18-19% net profit growth, the report said and warned that key to watch out for in Axis will be its asset quality trends, as its Deccan exposure can play spoilsport.
On smaller private lenders like IndusInd, the report said it may report 27-28% spike in profit growth, while Kotak may re
port a profit growth of 20% driven by topline, as its growth is seen at 30% and NIMs stable at 4.6%.
On SBI, the report says it may surprise on upside with an 18% growth driven by housing balance transfers but warns that its margins may be down 15-50 bps y-o-y but stable q-o-q as incremental lending at much lower yields.
SBI's NII growth may be down 3% y-o-y, as higher loan growth of 19-20% y-o-y may be offset by weaker margins which are likely to be down 50-55 bps y-o-y.
The report further sees SBI setting aside Rs 800-900 crore for wage provisions for the five-month period ending March. SBI's gross slippages are likely to be flattish q-o-q at Rs 7,000 crore while its restructuring could be Rs 4,000 crore led by one large wind-mill exposure coming through.
On the other hand, PNB may see a healthy 13-14% y-o-y growth in topline driven by flattish margins at 3.45-3.5%, but loan growth to be 10-12% y-o-y only. Its net profit may be flat owing to higher tax rate.
PNB also may report Rs 3,000 crore in slippages, but restructuring could be at Rs 3,500-4,000 crore only.
BOB is likely to report muted 5% y-o-y topline growth, but strong 15-16% y-o-y operating earnings growth driven by absence of one time pension.
For the system as a whole, recoveries may surprise resulting in net slippages being down 10-15%, on the back of str
On restructuring, the report says, it may remain high given the large CDR pipeline of over Rs 35,000-40,000 crore.