Banks likely to post 36.3% rise in Q3 net profit at Rs 38,153 crore

The listed banks are likely to post a 36.3 per cent year-on-year (YoY) rise in net profit at Rs 38,153 crore for the December quarter (Q3FY22), helped by a lower provisioning burden for stressed loans.

Sequentially, net profits may decline 2.2 per cent from Rs 39,022 crore in Q2FY22, according to Bloomberg’s estimates. The projection is based on analysts’ assessments covering 19 lenders — six public sector and 13 private banks.

Domestic brokerage Motilal Oswal said earnings of private as well public sector banks are likely to pick up, led by a recovery in business/fee income and a gradual reduction in credit costs.

Seconding the view, another domestic brokerage — Emkay — said banks under its coverage are expected to post healthy profits, driven by better growth, net interest margin (NIM), and contained provisions given a higher provisioning coverage ratio (PCR) and buffers in place.  

Better income, margins

The Bloomberg assessments said the net interest income (NII) is expected to grow 5.4 per cent YoY from Rs 1.59 trillion in Q3FY21 to Rs 1.68 trillion in Q3FY22. Sequentially, it may rise just 1.5 per cent, from Rs 1.66 trillion.

The income from the treasury (investments) is a crucial item for the bottom line and the hardening of yields could limit their contribution to income.  

Rating agency ICRA said the rising bond yields will pose challenges for banks in terms of their bond portfolios, with reducing the probability of gains and a higher likelihood of losses. The yield on the 10-year benchmark government security (G-Sec) had increased to 6.46 per cent as of December 23, 2021, from 6.22 per cent as of September 30, 2021,and 6.05 per cent as ofJune 30, 2021.

Kotak Institutional Equities, in a banking sector pre-view, said NIM is likely to be similar to the previous quarters, and contribution from the treasury is likely to decline further. With a steady increase in interest rates, it expected a muted performance in non-interest income.

Asset quality in check

The bad loans saw a dip in Q2, both in absolute and percentage terms. The trend is likely to prevail in Q3.

However, there is a big risk of slippages occurring from the restructured book and some risks from the normal book. But banks are not expected to raise the amounts to be set aside as provisions. Kotak Institutional Equities said it expected an improvement in asset quality outlook for most lenders, led by lower slippages and better recovery trends.

There are no large corporate slippages, while retail and SME (small and medium-sized enterprise) loans should show some improvement on a net basis. Slippages in these portfolios would still remain higher than pre-Covid levels.

Traction in credit growth

The economy opened up in Q3, which also saw the festival season in full swing before the Omicron variant struck. Centrum Equity Research said lenders under its coverage are expected to report better sequential loan growth in Q3FY22.

The Reserve Bank of India data showed that the credit growth on a YoY basis moved up to 7.3 per cent in the middle of December, from 6.7 per cent in September.