Public sector banks are likely to be ahead of their private peers in net profitability in the September quarter with an expected 21 per cent jump year-on- year on account of higher net capital gains, says a report.
Private banks are likely to post a 19 per cent growth in profit after tax in the second quarter ended September 30.
"We expect a net profit growth of 21 per cent year-on-year for state-run banks, supported by higher net capital gains as second quarter of the last fiscal was affected by higher bond yields," said the report by global financial services company Morgan Stanley.
Margins of private lenders are expected to expand during the July-September period on the back of better liquidity and benign competition, it said.
State-run banks are likely to report lower margins primarily due to change in loan mix to lower-yielding segments. The report expects the pace of bad loan formation to continue to moderate.
For government banks, the impaired loan creation is likely to moderate to 1.1 per cent of loans from 1.3 per cent in the first quarter, driven by stabilising macro and improved liquidity condition. Private corporate lenders should exhibit broadly stable trends quarter-on-quarter, Morgan Stanley said.
"While this is a positive for both private and state-run banks, the former should see quicker moderation in credit costs, given better coverage on existing non-performing loans."
The report maintained that strong capital base and lower asset quality issues are likely to help private banks to report a healthy loan growth in the quater ended September.
"Private banks would be well positioned to deliver loan growth in Q2 given stronger capital position, lower legacy asset quality issues and scope to originate good assets in the SME segment."
The goverment banks' loan growth would likely see material moderation in Q2 and continue to trail private lenders as they try to conserve capital. Public sector banks are moderating their loan growth in the SME space as it consumes more capital, it added.
