– the reason why banks
are tied up in the funds’ crisis – are likely to continue their downslide even as negatives for banks
are likely to have already played out, analysts say. Moderated slippages, stable net interest margin (NIM), higher provisions, stable gross non-performing asset (GNPA) ratio, recovery and resolutions of stressed assets and toned-down loan growth could guide the banking space.
“The story of two halves is likely to persist in the banking and financial services space in Q1FY20 -- while improvement in core performance will aid banks’ prospects, NBFCs
will continue to be plagued by liquidity constraints, reflected in availability as well as cost of funds,” analysts at Edelweiss Securities wrote in an earnings preview note.
For private banks, lower credit costs, contained slippages from retail and agri-based loans and improved market share could be a booster while falling benchmark yields could benefit public sector lenders, experts say.
“Earnings are expected to remain on track coming off from high NPAs. This quarter and fiscal onwards, earnings will be better. Among mid-cap private banks, AU Small Finance Bank, DCB, RBL Bank and Federal Bank could report decent earnings with revenue growth around 30-40 per cent on an average… PSBs have lower base due to due to losses in the previous quarter which will affect their numbers,” says Nitin Aggarwal, senior vice president- institutional research (banking), Motilal Oswal Financial Services.
However, significant haircuts, delay in resolution of cases under National Company Law Tribunal (NCLT), depleting asset quality and tepid loan growth continue to remain some of the concerns denting banks’ growth prospects analysts say.
According to Phillip Capital, the banking companies under its coverage could see a jump of 11 per cent year-on-year (YoY) and of 1 per cent quarter-on-quarter (QoQ) in net interest income driven by some moderation in credit growth and stable NIMs.
“Within this, private banks will report strong performance with net interest income (NII) growth of 18 per cent (YoY). Furthermore, pre-provision profit is expected to grow by 8 per cent (YoY), but could decline by 5 per cent on a sequential basis. Pre‐provision profit for retail banks is expected to grow 24 per cent (YoY) and 2 per cent (QoQ), while that of PSU banks will decline by 12 per cent due to seasonality,” their analysts wrote in a result preview note.
The quarter could see bank-specific recovery depending on the level of exposure each bank has to default names.
“Slippage will moderate slightly and will mainly come from corporate accounts; retail and agri slippages should moderate. This, along with few small‐ticket recoveries should keep GNPAs stable. We expect GNPAs (%) to decline by 10 basis points QoQ,” analysts at Phillip Capital said.
For NBFCS, analysts at Edelweiss peg the overall growth of asset under management (AUM) of NBFCs
at 2.1 per cent (QoQ) and 12.8 per cent (YoY).
“In H2FY19, NBFCs’ earnings were supported by assignment income, which is likely to be relatively lower in Q1FY20. However, they will be supported by wholesale borrowing cost coming off 20-30bps, helping them improve core performance at the margin on a low base in H2FY20. We estimate operating growth of 3.6% per cent (YoY) and earnings growth of 22.3 per cent (YoY) for NBFCs under coverage,” they said.