Loan growth, higher margins, lower costs to drive bank bottom lines in Q1

Indian banks are expected to post strong core earnings growth in the June quarter, with healthy traction in advances, improved margins and decline in credit costs. However, rising yields could result in marked-to-market losses impacting the earnings momentum.

Almost all analysts expect credit growth for the banking system will be upward of 12%, largely driven by private banks. Net interest margins (NIM) could also inch upward of 3% largely due to better net interest income and an upward interest rate cycle.

Other income may decline by 27% sequentially driven by treasury loss and lower fees, offset by lower opex.

"Overall banking profit after tax (PAT) might see an 11.5% QoQ drop; key monitorables would be margin outlook, guidance on deposit accretion for some banks and treasury loss," said Gaurav Jani - research analyst, Prabhudas Lilladher.

Among frontline banks, is expected to report strong PAT growth while might see a marginal drop in PAT and NIM is expected to remain range bound.

could continue improvement in loan growth although PAT might decline QoQ.

might maintain its loan growth momentum as retail continues to see traction while for Axis margins are expected to improve.

"We believe that better credit growth, along with rising interest rates, should be margin positive for banks that have a higher share of floating rate books, including mortgages," said Anand Dama, analyst with . "Moreover, asset quality is on the mend, with the risk of a fresh NPA cycle remaining low, which should lead to healthy profitability and return ratios for banks. Valuations have also corrected meaningfully, which provides a margin of safety."

Overall slippages, recoveries and provisions may normalize sequentially while gross bad loans may ease up. Analysts expect overall GNPA ratio to decline by 20 basis points sequentially to 5.2% in the June quarter, led by lower slippages reflecting in low EMI bounce rate at 22%, better recovery trends in retail and higher w-offs with banks sitting on excess provisions.

"Asset quality is expected to be less concerning with confidence shown by the management as collection activity is showing improving trends," said Kajal Gandhi, analyst with . "Stress behaviour in the MSME segment needs to be monitored as increasing interest rates and end of moratorium could have built up pressure."