Money & Banking

Q1FY22 results: Banks likely to report muted earnings, some stress in asset quality

Surabhi Mumbai | Updated on July 08, 2021

Recovery likely to be faster

Banks are likely to report muted earnings with pressure on asset quality for the first quarter of 2021-22, reflecting subdued economic activities due to localised lockdowns amidst the second wave of the pandemic.

A number of banks have already released provisional data on key business parameters for the quarter-ended June 30, 2021, that reflect muted growth in advances and robust increase in deposits.

Private sector banks are set to release their first quarter results in coming weeks. HDFC Bank will report its results on July 17, followed by others like Axis Bank and ICICI Bank.

Non-food bank credit growth slowed to 5.9 per cent in May compared with 6.1 per cent in the year-ago month, data from the Reserve Bank of India revealed.

Brokerage views

“We believe the first quarter of 2021-22 to be a quarter of consolidation as the momentum in recovery gained over the fourth quarter of 2020-21 was impacted by the second Covid wave, with the asset quality outlook deteriorating once again. Business activity was impacted over April and May 2021, and localised lockdowns were seen across most States. As a result, systemic growth moderated to 5.8 per cent as of June 18, 2021,” said a recent report by Motilal Oswal on first quarter earnings of banks.

“The second Covid wave, coupled with localised lockdowns, is likely to impact asset quality performances of banks,” it further said.

ICICI securities in a recent report noted that lead indicators point towards increased stress in the near term.

“...according to various management commentary, there has been a decline in collections by 2 per cent to 5 per cent range in April and May 2021 due to partial lockdowns,” it noted.

The RBI’s Financial Stability Report of July 2021 has noted that gross non-performing asset (GNPA) ratio of scheduled commercial banks may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the baseline scenario; and to 11.22 per cent under a severe stress scenario.

While the impact of the second wave of the pandemic is likely to be lower, restructuring requests are expected to be higher this year in the absence of a moratorium.

However, most experts believe that banks are in a better position to tide over the economic slowdown this time than last year.

“We believe that the banks are relatively better-placed to handle the stress from the second wave and hence we continue to maintain a stable outlook on the sector,” said Anil Gupta, Vice-President – Financial Sector Ratings, ICRA Ratings, in a recent report.

Published on July 08, 2021

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