Investment firm Merrill Lynch (ML) is of the view that with rising interest rates, most banks are going to see earnings lower by around 2-8 per cent, as loan growth will be slower, more provisions will have to be made as G-Secs will have to be marked down to market and NPAs will begin to rise as the asset quality cycle is likely to begin to get adverse. According to ML estimates, the yields on 10-year G-Secs will rise 85 basis points this year (earlier estimated at 50 bps) and another 45 next year (35 bps earlier). Loan growth is forecast to rise 24 per cent this year as compared to 30 per cent last year. Earnings are forecast to fall even faster for banks, like the Oriental Bank of Commerce, that have a higher vulnerability to bond yields "" for OBC, the cut in this year's earnings is forecast at 23 per cent. A higher cut is forecast for most government banks in comparison with private sector banks "" it is 8.7 per cent for Vijaya Bank and 7.1 per cent for Canara Bank which have been downgraded to the "sell" category. Among the public sector banks, SBI is the least affected, though HDFC Bank and ICICI Bank are even less affected.
