Web Exclusive
PSBs' Q3 nos to be a mixed bag; loan growth, NPAs to be tracked: Analysts

Emkay Global expects operating profit growth to be tad moderate due to lower treasury gains
Sluggish loan growth, low other income, and delayed resolution of stressed assets maylead to a precarious financial position for public sector banks (PSBs) duringthe December quarter of FY21 (Q3FY21), caution analysts. 

"We estimate weakness to continue in PSBs, barring State bank of India, impacted bysluggish loan growth, a higher proportion of MSME/SME loans, and delay in theresolution of stressed accounts," said analysts at Motilal Oswal FinancialServices (MOFSL) in a sector report.

Those at Emkay Global, on the other hand, say that the Supreme Court's stay on NPA tagging remains an irritant in Q3, and may lead to optically elevated proforma slippages due to the spill-over from Q2FY21. That said, overall NPA formation, as well as restructuring proposals, are meaningfully lower than expected though one needs to be watchful of the tail-end risk, it added.

Operating and net profit
Emkay Global expects operating profit growth to be tad moderate due to lower treasury gains; softness in net interest margins (NIMs) due to lower loan-to-deposit ratio (LDR)/interest reversal; and moderate pick-up in opex.

For banks under its coverage, including Bank of Baroda, Canara Bank, Punjab National Bank, and SBI along with two others, the brokerage expects overall operating profit to decline 5 per cent year-on-year (YoY) led by a 29 per cent YoY drop by Union Bank of India but capped by an 18 per centYoY gain by Canara Bank. 

Net profit, meanwhile, is pegged to plunge a massive 43 percent on year, and 71 per cent sequentially. Canara Bank and SBI are projected to report 76 per cent and 46 per cent YoY slide in PAT at Rs 182.4 crore and Rs 3,006.1 crore, respectively. 

On the contrary, analysts at Sharekhan – who track SBI, BoB, PNB, and Bank of India – expect the combined net profit to jump 157 per cent YoY during the quarter under review. Of these, BoI may alone post a 456 per centYoY surge in PAT at Rs 592 crore compared with a PAT of Rs 106.4 crore reported in Q3FY20. The brokerage pegs operating profit growth at around 7 percent YoY and 8 per cent QoQ.

Loan growth and NII
Q3FY21 witnessed healthy traction in Agricultural loans(including gold loans) and unsecured retail loans. Corporate loan growth, meanwhile, saw signs of improvement in November, 2020. 

In this backdrop, analysts at Antique Stock Broking expect state-owned banks to print low single-digit growth. Nirmal Bang Institutional Equities pegs the growth in PSBs' loan book between 5 per cent and 6 per cent over previous-year figure. 

"Loans growth for the system has been fairly muted, although enquiry levels have been gradually getting better. We expect better liability franchises or niche players to surprise positively on both deposit and CASA growth, though we hasten to add that we do not believe these trends are sustainable over the medium term," said a note by global brokerage Nomura.

As regards net interest income (NII), MOFSL pegs the growth at 2.8 per cent YoY while Sharekhan foresees it at Rs 47,857 crore, up around 10 per cent YoY for the banks under its coverage. 

 
Emkay Global, meanwhile, expects combined NII to soar 54.3 per cent on year, lifted mainly by 15.3 per cent and 25.5 per cent YoY improvement in Canara Bank and Indian Bank,respectively. 

 
Asset Quality
ICICI Securities believes that stress from the left-overpool, i.e. from loans outside of collection and restructuring bucket, will be the key to watch out. It expects SBI's gross NPA to deteriorate by 100 bps duringthe quarter. 

"With NPL recognition on hold for the past few quarters, andthe Supreme Court hasn't yet vacated its ruling, NPL formation will continue topile up, in our view. That said, if asset quality holds up better, the focuswill turn towards balance sheet and operating profit growth," said analysts at Nomura. It expects SBI to shore up provisioning by 38 per cent YoY (down 1 per cent QoQ), while BoB is projected to reduce provisioning by 51 per cent YoY (up 16.5 per cent QoQ). 


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel