Private sector banks are likely to see about 5 per cent uptick in earnings while profit of State-owned lenders may drop 12.7 per cent for the second quarter of this fiscal, a report said.

According to brokerage firm Motilal Oswal, private sector banks would continue to outperform public sector lenders in quarterly earnings.

“Continued asset quality stress and focus on balance sheet health would drive banks to make high provisions, which could impact earnings,” the report said.

It noted that the RBI’s tough stance on the clean-up of balance sheets by March next year would weigh on banks’ asset quality. However, following the RBI’s asset quality review (AQR) and the clean-up exercise taken by banks, the stress will see a decline on quarter-on-quarter basis.

Besides, the report said factors such as lagged impact/harmonisation of account status of RBI’s AQR, banks’ continued clean-up exercise, non-fund-based exposure turning into non-performing assets for some stressed corporates and impact on the supply chain of stressed large corporates could weigh on banks’ performance. Noting that recovery efforts have accelerated, but are yet to materialise, Motilal Oswal said that weak trend can be estimated in recoveries for large corporate exposure and continued healthy trend in SME exposure.

“Banks like Punjab National Bank, Bank of Baroda, and Union Bank of India, which have aggressively recognised stress loans over the last one year may surprise positively on this front,” it said.

Related Topics