Research reports put out by brokerages expect banks, especially the public sector ones, to post stellar show during the October-December 2019 period thanks to a slew of big-ticket debt resolutions that have seen huge money flow back into their coffers. The NCLT resolutions include Essar Steel that saw Rs 42,000 crore recovery and mid-sized ones such as Ruchi Soya.
“Lower opex run-rate and higher recoveries from NCLT resolutions are likely to cushion earnings. PSBs are expected to deliver NII growth of 15% year on year and profit after tax growth 36% YoY, mainly led by the strong earnings recovery in State Bank of India. We expect PSBs’ PPoP (pre-provision operating profit) growth to remain healthy at an estimated 27% YoY,” Motilal Oswal said in a report.
The brokerage sees SBI’s net profit rising 82% to Rs 7168 crore during the quarter and ICICI Bank’s net jumping 145% to Rs 3,944 crore.
“SBI will look be outlier with strong recovery and provisions write back although the bank will also factor in DHFL NPA and normalized slippages. Operational SBI should do better on good NII growth and controlled opex,” Prabhudas Lilladher said.
Punjab National Bank, Bank of Baroda and Union Bank will see an uptick in recoveries and lower slippages relatively helping earnings and asset quality, it said.
Kotak Institutional Equities is more bullish on the banking sector’s prospects. “We model 74% y-o-y growth in net profit of the banking and diversified financials sector led by a recovery from some large corporate NPL accounts, lower tax rates and large fair value gain of Rs 9,000 crore recorded by HDFC on de-recognition of investment in Gruh following the latter’s merger with Bandhan Bank,” the Kotak report said. The results also look good as there was a low base on account of higher provisioning during the year-ago quarter.
Among private banks, ICICI Bank and Axis Bank are likely to post strong recovery with provision reversals and full tax benefit, while HDFC also would get the full benefit of tax benefit as during the last quarter all private except Kotak had seen DTA markdown.
“We expect mid-size private banks’ performance to remain mixed, with Federal Bank/DCB reporting 17%/18% YoY growth in net earnings. On the other hand, RBL’s earnings will be impacted by higher credit cost due to its exposure to a few stressed groups. The bank’s PAT is thus expected to decline sharply, though PPoP growth may remain healthy at 30% YoY,” the Motilal Oswal report said.
It expects small finance banks’ earnings to remain mixed with AU Bank reporting a robust PPoP/PAT growth of 68%/91% YoY, led by strong loan growth of 32% YoY, though Equitas is expected to report modest PPoP/PAT growth of 11%/3% YoY.
Life insurance firms, however, are likely to report modest earnings growth. “HDFC Life and ICICI Prudential Life are estimated to report net premium income growth of 22% and 16% YoY, respectively. With a continued focus on the protection business, the margins trajectory will likely remain stable. Overall, we expect PAT growth of 15% for HDFC Life and 10% YoY for ICICI Prudential,” the Motilal Oswal report said.
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