Lack of govt spending to hit recoveries-Business Standard--Manojit Saha | Mumbai April 9, 2013 Last Updated at 00:50 IST
Muted profit growth likely in Q4, NIMs to stay under pressure
With the government controlling its expenditure, including payments for bills to contractors, road developers, etc, banks’ recovery targets went awry in the fourth quarter of 2012-13.
Usually, the last quarter of the financial year is when most of the recovery is done. But, most public sector banks’ (PSBs’) recovery was far below what they expected. Also, say some bankers, due to non-payment by clients, some accounts might have slipped further.
“The going is still tough for PSBs, with elevated slippages, though some respite is expected from relatively higher recoveries/upgradation,” said Edelweiss Financial Services in a research note. Banks are already struggling with high slippages and have tried to expand recovery effort. Analysts say lower recovery and higher provisioning for wages might mean only single-digit profit growth for most PSBs.
“We are likely to see government banks’ earnings disappoint, with a five to 35 per cent year-on-year decline in net profit, as banks provide for wage revisions and many government banks had tax reversals/write-backs in the fourth quarter, owing to higher provisions,” Bank of America Merrill Lynch (BofAML) said in a note to its clients.
Issues
With stressed assets in the banking system having doubled in the year till December-end, the average size of restructured loans have also increased, experts said.
Data by the finance ministry show PSBs’ stressed assets rose to 11.6 per cent of the total as on end-December from 6.7 per cent a year before. A study by Ambit Capital says the average size of restructured loans has risen 14 per cent to Rs 590 crore.
According to Kotak Securities, though fresh slippages are likely to remain stable sequentially, banks with exposure to the wind power sector are likely to report higher provisioning. The recent regulatory changes which allow banks to remove restructured assets from the pool of loan recast, if the asset has performed satisfactory for two years, is likely to have some impact. Banks were upgrading such loans after a year.
“Now, all banks would come on the same platform and would report the restructured loans borrower-wise, including all facilities. For many banks, this could see a rise in the restructured portfolio, as they were reporting facility-wise or upgrading the loan after one year itself of satisfactory performance,” Kotak Securities said.
Usually, the last quarter of the financial year is when most of the recovery is done. But, most public sector banks’ (PSBs’) recovery was far below what they expected. Also, say some bankers, due to non-payment by clients, some accounts might have slipped further.
“The going is still tough for PSBs, with elevated slippages, though some respite is expected from relatively higher recoveries/upgradation,” said Edelweiss Financial Services in a research note. Banks are already struggling with high slippages and have tried to expand recovery effort. Analysts say lower recovery and higher provisioning for wages might mean only single-digit profit growth for most PSBs.
“We are likely to see government banks’ earnings disappoint, with a five to 35 per cent year-on-year decline in net profit, as banks provide for wage revisions and many government banks had tax reversals/write-backs in the fourth quarter, owing to higher provisions,” Bank of America Merrill Lynch (BofAML) said in a note to its clients.
Issues
With stressed assets in the banking system having doubled in the year till December-end, the average size of restructured loans have also increased, experts said.
Data by the finance ministry show PSBs’ stressed assets rose to 11.6 per cent of the total as on end-December from 6.7 per cent a year before. A study by Ambit Capital says the average size of restructured loans has risen 14 per cent to Rs 590 crore.
According to Kotak Securities, though fresh slippages are likely to remain stable sequentially, banks with exposure to the wind power sector are likely to report higher provisioning. The recent regulatory changes which allow banks to remove restructured assets from the pool of loan recast, if the asset has performed satisfactory for two years, is likely to have some impact. Banks were upgrading such loans after a year.
“Now, all banks would come on the same platform and would report the restructured loans borrower-wise, including all facilities. For many banks, this could see a rise in the restructured portfolio, as they were reporting facility-wise or upgrading the loan after one year itself of satisfactory performance,” Kotak Securities said.
Apart from lower recovery, margins are also likely to under pressure for government banks, with the sluggish loan growth in the fourth quarter of 2012-13. For the year till March 22, bank credit growth was 14.1 per cent and deposits grew 14.3 per cent. Deposit growth shot up in the last two fortnights of the previous financial year, with almost Rs 1 lakh crore of deposits mopped by banks. This resulted in short-term deposits rising above nine per cent of the total.
“Banks continue to chase limited deployment opportunities and close the wedge between deposit and credit growth. We expect net interest margins to stay under pressure (five to 10 basis points lower, quarter on quarter, largely on account of an anticipated pick-up in peak season business activity levels,” said Ambit Capital.
Offset
Treasury operations might come as a saving grace, as the government bond yield curve moved favourably during the quarter, analysts said.
More, banks with a higher share of bonds available for sale might gain further with the favourable movement of bond yields. “We believe a decline in three-year bond yields by eight to nine basis points will lead to treasury gains, as seen in the third quarter. Government banks, with a higher share of the AFS (available for sale) book will benefit the most and (this) could be the ‘wild card’ in (the fourth quarter),” said BofAML.
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