Tag: Bhushan Power & Steel

With the SC lifting freeze of classifying NPAs, the banks are likely to shift focus on recovery efforts and recognise NPAs in the fourth quarter.

“Although overall trends in asset quality have fared better than expectations, led by a sharp improvement in collection efficiency and a lower restructuring book, the recent surge in Covid cases and the fear of a lockdown in key districts keep us watchful on asset quality,” wrote Motilal Oswal analysts in their Q4 earnings preview for the banking sector.

While many banks have already provided for this likely increase and carry additional provision buffers, which should limit the impact on profitability, brokerage sees banks continuing to strengthen their balance sheets and credit cost staying elevated.

“A spate of Covid cases and soft reintroductions of certain government restrictions would likely tip the balance of Q4 provisioning policy in favour of conservatism. Write-backs/ offsets would probably start in earnest in H1FY22, writes Edelweiss Research in a note.

How are private banks likely to fare in Q4?

For private banks, operating profitability is likely to improve while provisions would remain elevated. Motilal estimates private banks to report Pre-provisioning operating profit (PPOP) growth of 19% YoY (+2.7% quarter on quarter) and net profit growth of 108% year on year (+2.2% quarter on quarter) due to a low base in the fourth quarter of FY20. the Motilal Oswal report said. Although credit cost is likely to remain higher, a pick-up in loan growth along with healthy traction in fee income and modest opex would support earnings.

Loan growth is likely to pick up, led by rising consumer demand, particularly in the Retail segment. Even growth in the Corporate segment is recovering, with the focus on lending to highly-rated corporates. Banks, however, remain cautious about growing their unsecured portfolio.

Asset quality would remain under watch as lenders would recognize actual NPAs as the stay on NPA recognition has ended. Though slippages would remain higher, it is likely to moderate on a sequential basis.

Margin to exhibit stable/improving trends

Net interest income (NII) is likely to grow 15% YoY at banks as the cost of funds is likely to remain low, given the excess liquidity in the system. Although negative carry on slippages could impact margins, gradual deployment of excess liquidity and repricing of deposit base would support margins, Motilal said, adding, large banks, with a strong liability franchise, are better placed to tackle margin pressure.

Deposit traction would remain strong, reflecting 12% YoY growth for the system, while many Banks have increased focus on ramping up retail deposits

Public sector banks

PSBs’ earnings to show a healthy pick up as operating metric for PSBs would improve. Within PSBs, the State Bank of India is likely to report a healthy performance supported by the resolution of Bhushan Power & Steel, which would result in healthy recoveries and a seasonally strong quarter on fee income. PSBs are expected to deliver NII/PPOP growth of 27%/16% YoY and PAT growth of 110% year on year on a low base.