Amidst the fear of rising bad loans, banks are expected to post mixed bag of performance in the second quarter (July-September), 2012-13. Asset quality is one of the key drivers for lenders to convince the market.
However, banks' net interest income or the difference between interest earned and paid out, quarter-on-quarter basis, would increase slightly for some banks like Bank of Baroda , Union Bank of India , and Axis Bank , compared to the April-June quarter.
In line with public sector banks, private lenders including Axis Bank and others of late, started appearing in the list of non-performing assets. Most of the banking analysts continue bet on a combination of private and state-owned banks including SBI , HDFC , ICICI , and Bank of Baroda .
"To assess banks' second quarter performance, asset quality is going to be a key differentiating factor in terms of slippages and restructuring," said Saikiran Pulawarthi banking analyst at Espirito Santo Securities, a Portuguese owned firm.
"The overall performance will be mixed. We need to look at bank specific performance. Management changes in different banks will also be closely watched by investors in the coming quarters."
Slippages refer to those loan accounts whose repayment status worsen further. Restructuring is the process when a borrower fails to repay his loans and asks for relaxation of original terms and condition.
According to rating agency - Crisil, the fresh restructuring of loans is estimated to be at around Rs 3.20 lakh crore by March, 31, 2013. Higher number of non-performing assets requires higher provisioning, which reduces profit margins.
Currently, there are three state owned banks including Bank of Baroda, Bank of India and Indian Bank wherein chairman and managing directors (CMDs) are yet to be recruited. Moreover, there are almost ten posts for executive directors that are lying vacant in PSU banks.
Moreover, the flattish yields of government bonds did not leave much room for banks to show mark-to-market (M to M) profits against their investment portfolio. In between June 29 and September 29, yields on government bonds did not fall substantially and remained almost flat.
"Banks are unlikely to post any mark-to-mark profit on their investment portfolio in the second quarter. This diminishes the changes of writing back of provisions made for M to M losses," said Bhavesh Kanani, a banking analyst from Centrum broking.
Banks are mandated to make provision for M-to-M losses against their investment portfolio while they cannot book profit M-to-M profit. According to Kanani, lender can write back a part of provisions made for losses, in proportion of the latest mark-to-market profit. If there is no profit, there is no scope of writing back of provision, which would have brought down the total provisions adding to profit margin.
"Weak macro-economic environment, sluggish investment climate and high inflation are likely to have an adverse impact on asset quality of banks, We expect net profit growth of 16.3% YoY, but a sequential decline of 3.6%, for banks (state-owned and private banks combined) in our coverage universe. We expect gross non-performing asset (NPA) growth of 35.4% YoY and 3.3% QoQ and net NPA growth of 36.1% YoY," said a research report by Nirmal Bang.
saikat.das@network18online.com
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