Bank credit growth seen in double digits in Q4; flat NIMs likely: Analysts

Banks are likely to report healthy January-March quarter (Q4FY22) earnings with loan book expected to grow, on an average, in double digits and asset quality staying stable. Analysts believe the quarter, which was marred by geopolitical tensions, rising bond yields, and global interest rates, may see a drag in non-interest income due to treasury losses and flattish net interest margins (NIMs).

“Earnings momentum is likely to gather pace, with healthy loan growth, stable margins, and improving asset quality trends. Investment income (trading gains/mark-to-market hit) is likely to be a marginal drag on earnings. That said, banks are seeing healthy growth in unsecured products, working capital demand, SME loans and mortgages. Recoveries and upgrades are likely to outpace slippages. On the expense side, operating expenses could remain elevated by investment in branches, technology and pick up in retail volumes,” wrote analysts at IIFL Securities in their earnings preview report.

The brokerage expects net interest income (NII), pre-provision operating profit (PPoP), and net profit of all the banks under its coverage to grow 19 per cent, 4 per cent, and 66 per cent year-on-year. Industry credit loans, meanwhile, may swell nearly 13 per cent YoY for banks under IIFL’s coverage. It expects a pick-up in growth across segments, particularly for unsecured retail, SME and housing finance.

That said, while analysts believe forward flow into the delinquency bucket would likely be restricted in Q4FY22, analysts expect behaviour of ECLGS lending pool and restructured portfolio would be key to watch.

Private Banks

Analysts at Kotak Institutional Equities (KIE) are baking in about 21 per cent YoY and 6 per cent sequential growth in NII for over 10 private banks under their coverage, including Federal Bank, Axis Bank, HDFC Bank, ICICI Bank, and IndusInd Bank.

PAT, or profit after tax, improvement is seen at a whopping 86 per cent YoY and 6 per cent QoQ led by Bandhan Bank (up 978 per cent YoY), RBL Bank (226 per cent YoY), ICICI Bank (64 per cent YoY), and Axis Bank (51 per cent YoY).

Loan growth, meanwhile, is projected to grow 15 per cent and 17 per cent over FY22 and FY23, respectively. “We estimate ICICI Bank to deliver 16 per cent YoY loan growth in Q4FY22, and Kotak Mahindra Bank and Axis Bank to grow 20 per cent and 15 per cent YoY, respectively. HDFC Bank and IndusInd Bank have already reported provisional growth of 21 per cent and 13 per cent YoY, respectively,” said a report by Motilal Oswal Financial Services.

Those at Kotak, however, caution that banks may get more aggressive on loan growth thereby putting downward pressure on yields, which might not be completely offset by hike in benchmark interest rates. At the same time, increasing competition for liquidity (deposits) in the market can also push up deposit rates.

“Moreover, bond yields seem to be trending upwards now. In the backdrop of these changes, we believe that margins for banks might be at the peak. We would not be surprised if managements talk about margin pressure impacting NII growth in the near-medium term,” they said.

Public Banks

PSBs are likely to experience continued traction in their operating performances, supported by recovery in business growth, and a sustained reduction in provisions even as operating expenses may remain slightly elevated and treasury performance muted.

Slippages, said analysts at Motilal Oswal, would continue to subside, which along with healthy recoveries would reinforce the asset quality performance. PSBs are likely to deliver NII/PPoP growth of 23 per cent/5 per cent YoY and 4 per cent/9 per cent QoQ, respectively. PAT could grow strongly at 80 per cent YoY and over 20 per cent QoQ in Q4FY22 led by Canara Bank (up 100 per cent YoY), Punjab National Bank (98 per cent YoY), and State Bank of India (SBI; 66 per cent).