)
Public sector banks (PSBs) might see their bottom line coming under pressure for yet another quarter due to higher provisioning towards stressed assets and the bond portfolio, while banks with a higher share of low cost deposits will fare the January-March quarter better, analysts and brokerages predict.
According to brokers, new generation private lenders such as HDFC Bank and, among PSBs, State Bank of India and Punjab National Bank - lenders with a higher share of low cost deposits and having benefited from the FCNR (B) swap window offered by the Reserve Bank of India (RBI) for a limited period last year - are seen to have fared better in the quarter. It had seen a spike in short-term rates, denting margins of lenders with less of current account and savings account (Casa) deposits.
Despite modest credit growth and a lacklustre growth in fee income, margins are seen stable on a sequential basis, as most banks refrained from raising deposit rates. Short-term rates spiked in mid-February but came down later after the central bank infused liquidity.
"Banks with a large pool of Casa deposits would remain unaffected from the recent monetary tightening, barring their short-term fund requirements, which would be adjusted through Casa. Hence, pressure on margins would be lower compared to peers," said IDBI Capital in a note to its clients.
Analysts predicted most PSBs would see their net profit declining 10-12 per cent, on the back of higher provisioning toward non-performing assets and restricted advances. In addition, most PSBs have to make provisions for mark to market (MTM, writing down assets in line with current valuations) losses of the second quarter. This was due to a sudden reversal of short-term interest rates as RBI raised the marginal standing facility rate by 200 basis points to curb speculation in the foreign exchange market amid a weakening rupee in July-August last year.
"We expect earnings divergence amongst our coverage banking stocks to continue, as we anticipate new private banks to report healthy earnings growth of 18.7 per cent year-on-year (y-o-y), while PSBs under our coverage are expected to report weak performance with earnings de-growth (fall) of 12 per cent yoy," said analysts at Angel Broking. Private banks had fully provided for the MTM loss in the second quarter.
Asset quality woes continue but are seen to have peaked. "We expect private banks to continue to report better quality of earnings than their PSB counterparts, though incremental deterioration in PSBs is expected to recede," said Karvy Broking.
The silver lining during the January-March period is likely to be treasury performance, with bond yields stable and a rise in stocks which could help banks to book profit on their investment portfolios. "The recent run-up in equity markets might see some banks recording gains in their investment portfolio," Angel Broking said.
The stock market scaled new peaks on several occasions in March, on the back of strong portfolio inflows. Yields on one-year and 10-year government securities have fallen four basis points and 10 bps, respectively over the fourth quarter, which might result in modest gains for some banks.
THE BOTTOM LINE
* Higher provisioning towards stressed assets expected to pull down PSBs' bottom line during January-March quarter
* Most PSBs to see their net profit decline 10-12 per cent
* HDFC Bank, State Bank of India and Punjab National Bank would fare well thanks to their larger share of low-cost deposits
* RBI's FCNR(B) swap window, offered for a limited period in FY14, also helped these banks
* Private banks expected to continue to report better quality of earnings than PSBs
