Banks to post better performance in FY20

With banks firm on the recovery track, the fourth quarter is likely to see improved performance and lower non-performing loans.

Better tidings

Most analysts believe fiscal 2019-20 is set to bring in better tidings, barring a few uncertainties such as the Supreme Court ruling on the February 12 circular and continuing concerns at the IL&FS Group.

Private sector lenders such as RBL Bank and HDFC Bank are set to announce their results for the quarter ended March 31, 2019, as well as for the financial year 2018-19 from next week.

While RBL Bank’s results will be announced on April 18, HDFC Bank has scheduled it for April 20, and Axis Bank, which has its board meeting on April 25 and 26.

ICICI Bank, as well as other public sector lenders, are set to announce their results later in May.

Most analysts believe that the period of stress and the bad loan cycle is now coming to an end, with more focus on resolution and credit and deposit growth.

Post elections, it is expected that there will be further improvement, as there is likely to be more credit demand.

“Banks are likely to head into a steady fourth quarter and continue to see improvement in asset quality metrics with low stress and constant provisioning, leading to high provision coverage ratios. Though the recent large resolutions are not likely to reflect in the fourth quarter, they should not even attract ageing provisions,” stock broking firm Prabhudas Lilladher said in a recent report.

Motilal Oswal has also said the outlook for corporate banks is improving, given moderation in slippages, reduction in stressed loans, and improving profitability. “Revival in credit growth, along with improved pricing power, will help drive faster net interest income growth, while moderation in non-performing loan formation will facilitate a gradual decline in provisioning expenses,” it said.

Similarly, Kotak Institutional Equities said the government’s recent capital infusion programme will help some banks make aggressive provisions and lower their bad loans to less than 6 per cent, allowing them to exit the Prompt Corrective Action framework.

“Most of our discussions with banks in recent times suggest that the unrecognised stress in corporate loans is negligible, especially after IL&FS. Risks emanating from real estate are not too high,” it said, adding that resolution through the IBC has slowed, as several high-profile cases could not reach a conclusion as anticipated earlier.

“However, progress continues outside through settlements, upgradation, and write-offs,” it said.

Gross NPAs

Rating agency Crisil has said that after peaking at 11.5 per cent in 2017-18, gross NPAs are set to reduce on the back of stressed asset resolution and fewer fresh slippages to about 10 per cent in 2018-19 and 8.5 per cent this fiscal.

“Proportion of SMA-2 accounts has moderated significantly. Moderation in slippages, coupled with recoveries from IBC-backed resolutions, will play a key role in NPA reduction,” it said in its recent ratings round up.

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