Money & Banking

Q3 results: Private lenders likely to see a turnaround

Surabhi Mumbai | Updated on January 07, 2019 Published on January 07, 2019

This is just a representational image.   -  REUTERS

Banks may see an improvement in credit growth; provisioning to be lower on resolution of some NCLT cases

The New Year is expected to bring in improved prospects for banks as they are likely to announce a recovery in third quarter results, leaving behind some of the pain points of the past quarters.

Starting with private sector lender IndusInd Bank on January 9, private sector banks are set to announce their results for the quarter ended December 31. Public sector banks are expected to announce their results next month.

HDFC Bank will announce its third quarter results on January 19.

Other private sector lenders such as ICICI Bank and Axis Bank, which had reported losses and high NPAs in the previous quarters, are also likely to see a turnaround in their performance.

“Banks are likely to have seen improvement in credit growth, which is also indicated from recent RBI data, as well as improvement in income in the third quarter.

“Asset quality is likely to have also improved with less slippages. With resolution of some NCLT cases, provisioning of banks would also be lower.

“For public sector banks, capital support from the government will be a boost, even going ahead in the fourth quarter,” said Aditya Acharekar, Associate Director, CARE Ratings.

Loan growth picks up

According to the latest data till November 2018, loan growth for the banking sector has improved by close to 15 per cent annually from about 6 per cent to 9 per cent a year ago, led by retail loans and funding to NBFCs.

“We expect banks under coverage to show further improvement in the overall key trends. Loan growth has accelerated, pricing pressure has eased, and treasury contribution has turned positive; asset quality will show further improvement, led by lower slippages, as well as improvement in recovery and write-off.

“Balance sheets look better, when compared to P&L statements, given asset-quality outlook,” said Kotak Institutional Equities in a research report.

However, the shadow of troubles at Infrastructure Leasing and Financial Services (IL&FS) continues to loom large over the performance of lenders, which are estimated to have a combined exposure of close to ₹1 lakh crore to the debt-ridden firm.

“We still need to watch out on how exposure to IL&FS by banks is treated, which could have an impact on NPAs,” said Acharekar.

Kotak Institutional Equities also said that the recognition of non-performing loans by companies under the IL&FS group would begin across banks this quarter, but the key impact would be for IndusInd Bank, which could make higher provisions this quarter.

Exposure to IL&FS

Banks, through the umbrella body, Indian Banks’ Association, have already approached the Reserve Bank of India for relaxation in NPA norms for their exposure to IL&FS.

Reliance Securities, in a report, said it expects provisions to remain high for the rest of fiscal, led by NPAs, with a further rise in provision coverage ratio (PCR) of banks, mainly PSBs.

“PCR for public sector banks increased to 53 per cent as of second quarter of the fiscal from 49 per cent as of fourth quarter of 2017-18 and is likely to rise further,” it said, adding that private banks could see some moderation in provisioning requirements.

Published on January 07, 2019
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