Banking sector to see profits plunge by 11%

Led by state-run banks which are set to report increased strains on asset quality, the banking sector is set to see net profits decline by 11 per cent in Q1 as compared to the last quarter of 2011-12, says a StanChart Securities report.

However, the profits could post a 43 per cent rise year on year, it said.

As far as state-run banks are concerned, they will see increased strains on their asset quality with more loan recasts pulling down their first quarter profit by 14 per cent quarter on quarter (QoQ).

They could, however, see a 53 percent rise in post-tax profit on an annualised basis, the report said.

With a comparatively better showing by the private sector banks, the report says overall earnings for banks will see a likely decline of 11 percent quarter on quarter (QoQ) but an annualised growth of 43 per cent.

The report further says though private sector banks remain better placed in terms of overall asset quality, they too will see stress on their assets with the overall profit likely to decline by 5 percent QoQ, though a growth of 30 percent year on year (YoY).

"We expect net profit for state banks to grow 53 percent year-on-year (primarily due to the low base effect for SBI) and decline 14 percent quarter on quarter in the first quarter of the fiscal.

"We expect net profit for private banks to grow 30 percent YoY and decline 5 percent QoQ. Overall earnings for banks will likely grow 43 percent YoY and decline 11 per cent QoQ," the report titled 'India Financial-Q1FY13-Stress loans in focus again' prepared by Mahrukh Adajania and Rounak Agarwal of StanChart Securities said.

The report attributes poor number to flat loan growth, sharp growth in overseas loans due to rupee fall, high trading gains and/or write-back of investment depreciation due to volatility in G-secs and corporate bond yields, pressure on core fee income due to weak corporate activity, among other factors.

On the asset quality side, the report says, it will remain mixed. "..Private banks will likely continue to show stable slippages and restructuring but the state-run banks will be a mixed bag".

On the trading front, the report says all the private banks are likely to show strong earnings and asset quality.