Strong loan growth to boost bank profits

Indian banks are expected to post strong operational performance in the March quarter, supported by strong credit growth and a modest increase in bad loans, analysts said.

So far, HDFC Bank and ICICI Bank are among the major banks to report quarterly results, posting net profit growth of 23% and 59%, respectively. Others, including Axis Bank and Kotak Mahindra Bank, are expected to report their March quarter results in the coming weeks.

According to analysts at ICICI Securities, bank credit is expected to grow more than 9% from a year earlier in the three months to March. The brokerage expects the lenders it tracks to see sequential loan growth of 4-8%. Encouragingly, business credit is also contributing to the incremental growth, along with the retail and commercial banking segments, analysts said.

“Kotak Mahindra Bank, AU Small Finance Bank, Axis Bank and Bandhan Bank are expected to outperform their peers with credit growth of over 16% YoY. State Bank of India, Indusind Bank, Yes Bank, IDFC First Bank expected to grow 9-12%; while RBL Bank and City Union Bank will continue to lag industry average growth,” it said in an April 6 report.

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The brokerage said while there is no direct impact on lenders from the current geopolitical situation, higher input prices and stretched working capital cycles will trigger short-term funding needs. term.

That aside, the impact on bilateral trade globally, disruption of payment mechanisms and rate volatility will affect foreign exchange earnings.

Not just in the March quarter, analysts expect that over the longer term as well, shifts to the underperforming category will moderate. However, the pool of restructured loans deserves special attention. Rating agency estimates peg the total restructured portfolio at 2.5% of loans, due to larger overhauls in the retail and small business segments.

“While we could see some slippages from the restructuring book, many banks estimated the overall impact at 15-20%, which seems manageable in the context of provisions held on restructured loans, in addition to reserves. for contingencies,” Motilal Oswal said in a statement. report on April 25.

While asset quality within the small and medium-sized enterprise (SME) sectors may remain under pressure, overall gross bad debts are expected to moderate, driven by robust trends in the corporate and retail segments, according to the Motilal report quoted above.

Others said the tightening of bond yields in the March quarter would affect banks’ Treasury revenues. At HDFC Bank, India’s largest private sector lender, growth in other income increased 0.6% to 7,637.1 crore from a year earlier. It reported a loss on the sale and revaluation of the investments of 40.3 crore.

Emkay Global Financial Services analysts expect overall net interest income growth of 18% on the back of healthy credit growth and stable margins.

“However, lower cash earnings and higher operating expenses amid business normalization and increased technology spending are expected to keep pre-procurement operating profit growth in check at 4% in year-over-year,” the Emkay report said on April 8.

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