Shrinking margins to keep private banks on the leash in Q4
Motilal Oswal Financial Services projects earnings to grow by only 9% year-on-year (excluding HDFC Bank), much lower than the credit growth. For private banks, this is projected at only 6% against 12% for public sector banks or PSBs.
While some of the banks are projected to gain from relaxation in RBI guidelines related to AIF (alternate investment funds) exposure, the impact on aggregate performance is limited. The revised RBI guidelines have relaxed provisioning requirement for investment done by banks in AIF which are linked to their debtor companies.
PSBs are benefiting from reduced slippages and improved recoveries, with their gross NPAs declining more rapidly than RBI’s baseline projections from June and December. It may be noted that PSBs had been the worst performers in terms of NPAs which had reached as high as 12% a few years ago against less than 5% for private and foreign banks.
In terms of individual banks, IDBI Capital projects an 18% profit growth for IndusInd Bank and 6.5% for ICICI Bank. Meanwhile, the net profit of State Bank of India is expected to drop year-on-year.
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