HDFC Bank revenues to stay robust

BANK RESULTS PREVIEW

HDFC Bank, the third largest lender by market capitalisation, has set the tone for the first quarter results of the banking sector by reporting a 34 per cent increase in its net profits. Banks are expected to report a healthy increase in total income as their margins are likely to be stable.

"The business growth is expected to be flat sequentially, or show a marginal growth or degrowth, but banks will post a decent year-on-year growth at 25-26 per cent," said Rajesh Malhani, a banking analyst with brokerage firm, Prabhudas Liladhar.

The public sector banks are likely to report pre-tax or operating profits of around 10 per cent as growth in the first quarter is generally modest. The year-on-year margins would be slightly lower as well.

However, the profit after tax will be higher at 18-20 per cent mainly because of lower provisioning, said Vishal Goyal, a banking analyst at Edelweiss.

The private banks are set to report a 30 per cent growth in operating profits and profit after tax due to the increase in net interest income and fee income. Provisioning would be slightly lower as mark-to-market losses would be less than the previous year.

The net interest margin would be largely flat. Public sector banks still need to catch up with their private sector counterparts regarding fee income businesses.

Many banks had raised their prime lending rates (PLRs) by 50-75 basis points towards the end of the last quarter or beginning of the first quarter. But at the same time, they have aggressively expanded their deposit base.

The banks with low base of low-cost deposits would face pressure on their margins, while those with a higher base will be able to maintain their margins.

Banks are also expected to register good profit growth because of a lower base last year. "Overall, the public sector banks will register a good performance. However, banks such as ICICI Bank and Canara Bank are expected to face pressure on margins as their low cost deposit base is low," Malhani said.

Among the private sector banks, ICICI Bank is expected to report some pressure on margins, while HDFC Bank will maintain its margins at the current level. The private banks would also not face any meaningful depreciation losses as their statutory liquidity ratio (SLR) books are small, he added.