India's top three private sector banks are expected to report mixed results in the first quarter ended June 2016 on a year-on-year (YoY) basis. While HDFC Bank's net profit is likely to have grown 20 percent, Axis Bank is estimated to have remained flat and ICICI Bank's net profit is again expected to fall.
Overall, the banking sector is expected to report better results in the first quarter (Q1FY2017) due to increased sale of non-core assets, lower cost of funds and bond gains, according to brokerage Motilal Oswal Securities Limited (MOSL).
HDFC Bank
Mumbai-based HDFC Bank is likely to see its net profit grow 20 percent YoY to Rs. 3,234 crore aided by better operating performance and asset quality. Its June 2015 net profit was Rs. 2,695 crore.
"Strong operating performance (20%+ PPP growth) and healthy asset quality (GNPA to remain stable QoQ at 0.9%) would lead to 20%+ YoY earnings growth in 1QFY17," said MOSL. The bank's loan portfolio is likely to have grown 28 percent YoY on the back of an uptick in retail and corporate loans.
Key estimates:
Net profit: Rs. 3,234 crore (up 20.2 percent, YoY)
Net interest income: Rs. 7,807 crore (up 22.2 percent, YoY)
Net income: Rs. 10,629 crore
Gross NPA: 0.9 percent (1 percent in June 2015 quarter)
Shares of HDFC Bank were trading at Rs. 1,199.50 apiece, up 0.10 percent at around 11 a.m. on the BSE on Tuesday.
ICICI Bank
India's largest-private sector lender is not expected to see its bad loan woes lessen in the June 2016 quarter, despite loans growing at around 13 percent, same as reported in the June 2015 quarter. Higher borrowing costs are expected to dent the bank's net profit by 21.5 percent YoY to Rs. 2,336 crore, according to MOSL.
"We expect moderate loan growth of 12-13% YoY (similar to the last quarter) to continue. Retail loan growth has picked up over the last two years and is expected to remain a key driver of loan growth...led by higher credit cost, we factor in a 22% YoY decline in earnings," the brokerage said.
Key estimates:
Net profit: Rs. 2,336.9 crore (down 20.2 percent, YoY)
Net interest income: Rs. 5,463 crore (up 6.8 percent, YoY)
Net income: Rs. 8,635 crore
Gross NPA: 6.6 percent (3.6 percent in June 2015 quarter)
The ICICI Bank stock was trading at Rs. 255.35, up 2.2 percent at around 11.17 a.m.
Axis Bank
The third-largest private sector lender by assets is likely to see net profit rise 0.8 percent YoY to Rs. 1,994 crore on the back of double-digit growth in loans and lower deposit costs.
"We expect loan growth to be healthy at ~21% YoY. Deposit growth is likely to be lower at ~14% YoY – AXSB is utilizing infra bonds and the refinancing window effectively...We expect slightly higher proportion of slippages in 1HFY17, leading to higher credit costs (150bp annualized v/s 74bp in 4QFY16)," MOSL said in its note.
Key estimates:
Net profit: Rs. 1,994 crore (up 0.8 percent, YoY)
Net interest income: Rs. 4,591 crore (up 13.2 percent, YoY)
Net income: Rs. 6,890 crore
Gross NPA: 6.6 percent (1.4 percent in June 2015 quarter)
Axis Bank shares were trading at Rs. 552.70, up 1.53 percent, at around 11.55 a.m.
Banking sector earnings trends for June 2016 quarter (according to MOSL):
Earnings to come in better QoQ, as 2HFY16 earnings were marred by asset quality review (AQR)-related stress addition and provisioning.
Non-core income and reduction in cost of funds likely to support earnings.
NII to be flat QoQ and YoY for state-owned banks, but grow 17% YoY and 3% QoQ for private sector banks.
The RBI's tough stance on the cleanup of balance sheets by March 2017 would weigh on banks' asset quality. However, following the RBI's AQR and the cleanup exercise taken by banks, we expect stress to come down sharply QoQ.
The moderate demand environment is likely to result in 10-11% YoY deposit/loan growth in 1QFY17. Saddled with NPAs, state-owned banks' growth is likely to fall short of the industry average.
Core revenue growth is likely to remain muted YoY, led by moderate balance sheet growth, declining margins YoY and moderate fee income growth. Non-core revenue and contained opex is likely to support core pre-provision operating profit (PPoP) growth.
