Banks set to post weak revenue growth in Q3: Analysts

Banks are likely to post weak revenue growth for the December quarter, analysts said, even as the loan growth improved and bad loan recognition remained paused. Conversations around asset quality, recognition, provisioning and the recovery cycle are likely to continue this quarter between banks and sector analysts.

Kotak Institutional Equities (KIE) on Wednesday said in a report that the overall revenue growth for banks could stand at around 6% year-on-year (YoY), while net interest income grows 10%. Weak loan growth will have a role to play. According to the latest available data, loan growth has been stuck between 5% and 7% YoY since the onset of Covid, compared to 8-10% a year ago. “While credit demand is recovering from post-lockdown lows along with approval rates and share of NTC (new-to-credit) originations, we expect loan growth recovery to be slower than expectations of market participants,” KIE analysts said. The current account savings account (CASA) ratio will be broadly stable or improving for most players in a low-interest rate environment.

The margin trajectory will remain moderately under pressure, given the continued monetary easing, low lending rates and relatively higher liquidity on bank balance sheets, said analysts from Motilal Oswal Financial Services. “Negative carry on NII on higher slippages could also impact margins. However, banks with a strong liability franchise are better placed to tackle margin pressure,” the brokerage said, adding that there could be a low single-digit impact on margins.

Sector experts will be closely parsing data on slippages and provisioning in the absence of regular non-performing asset (NPA) recognition. KIE said it will be looking at broadly three parts to the asset quality issue – the outstanding overdue book, including special mention accounts (SMA), 90+ days past due (DPD) and pipeline of fresh restructuring of loans; the commentary on provisions that is likely to be used and carried forward; and growth, if business is normalising.

“A higher-than-expected slippage this quarter, but a positive commentary of the future worries the most,” KIE wrote, adding, “It raises uncertainty and would result in investors asking fresh evidence of improvement while a lower slippage and better commentary on growth is probably the best outcome, which appears to be a low probability.”