Banks’ Q1 results seen steady; commentary on NIMs, deposit growth eyed
The banks’ financial performance is expected to remain flat in the first quarter of FY24 led by strong loan growth trends, stable credit costs and asset quality, which are seen as supporting profitability.
However, concerns remain about inflation of the banks’ retail unsecured loan portfolio, as the market looks forward to management’s guidance on the future trajectory of NIM (Net Interest Margin) and low-cost deposit growth.
Apart from the front line banks, even medium and small banks continue to show good credit growth numbers. Underwriting appetite has improved significantly in the microfinance sector as borrowers’ incomes have largely recovered,” institutional equity firm Kotak said in a note.
NIMs go down
Analysts pegged credit growth to banks at 15-16.5 percent year-on-year for the first quarter and NII (net interest income) growth at 20-28 percent. NIMs have decreased by 10-20 bps sequentially, but are higher by 20-60 bps annually.
Banks’ net profit is expected to rise by 54-60 percent year-on-year, led by about 35 percent in operating profit. PSU banks are leading with 96-116 percent of PAT growth and private banks with 32-45 percent.
While NIMs are expected to decline marginally for most banks due to the higher cost of funds, some large private banks are likely to report stable NIMs since deposit repricings have been lower than expected.
Customer choices
ICICI Bank, Kotak Mahindra Bank and IndusInd Bank are among the favorites, and Axis Bank is expected to return to profitability after losing the last quarter due to the acquisition of Citi. HDFC Bank is seen slowing in growth due to higher operating expenses prior to the merger with the main HDFC. Federal Bank, RBL Bank and Karur Vysya Bank are some of the best options among medium-sized banks.
Asset quality is seen as optimistic even as discussions about the growing share of bank lending to the higher-yielding but riskier unsecured retail sector are becoming more frequent.
In addition, recoveries and upgrades are expected to continue to outpace slippages, while some PSU banks may announce higher provisions to boost their coverage ratios, analysts said, bringing total NPA rates down 21 basis points over Quarterly basis. They added that the banks’ comment on the impact of the recent non-seasonal rains on the quality of agricultural loans/KCC will also be considered.
On the other hand, deposit growth continues to lag credit growth for most banks across the board, leading lenders to use their balance sheet liquidity, corporate deposits, or short-term market loans to fund lending.
“Deposit growth improved to 12 per cent YoY and 3.4 per cent QoQ, supported in part by DeMon’s mini RBI notes of Rs 2,000. However, Current and Savings Accounts (CASA) ratio should trend lower due to cannibalization of deposits For high interest,” said Emkay Global Financial.