Benefitting from the economic rebound, banks are expected to report a healthy bottom-line and asset quality profile in the quarter ended March 2023 (Q4FY23).
The net profit of listed commercial banks is projected to grow by an average 43.6 per cent year-on-year (YoY) in Q4FY23 amid better net interest margins (NIMs) and declining credit costs.
This is based on a combined assessment of analyst estimates for 17 banks on Bloomberg database.
The net profit of public sector banks is expected to show marked improvement -- up 84.7 per cent YoY. Domestic brokerage Motilal Oswal said earnings growth is likely to remain healthy for PSBs, aided by healthy margins and a constant reduction in credit cost.
As for private banks, earnings should remain healthy, too, aided by healthy business growth, healthy margins, and benign credit cost.
But operating expenditure (opex) is likely to remain elevated – for state-owned lenders because of wage revisions and for private banks due to continuous investment in businesses.
According to analyst estimates, banks may report 21.1 per cent YoY growth in net interest income (NII) in the March 2023 quarter, on rising lending rates and a higher yield on advances.
About gains from interest rate hikes for banks, CARE Ratings said private sector banks (PVBs) and public sector banks (PSBs) have maintained high spreads between lending and deposit rates.
Rate hikes and subsequent faster resets in lending rates versus deposit rates have led to NIM expansion in the near term.
This trend was seen in the December 2022 quarter, as well, when NIMs improved by 17 basis points YoY to 3.3 per cent.
NIMs were at 2.8 per cent in Q4FY22.
Banks revised upwards their external benchmark-based lending rates (EBLRs) by 250 basis points during May 2022- March 2023 in tandem with the increase in the policy repo rate.
The retail and MSME loans pricing is linked to EBLR.
The marginal cost of funds-based lending rate (MCLR) -- the internal benchmark for loan pricing, especially for corporates -- rose by 140 basis points over the same period.
The transmission in interest rate for fresh retail deposits was 170 basis points between May 2022 and February\March 2023, the RBI’s monetary policy report showed.
The improved asset quality and high provisioning cover have helped reduce credit costs and provide benefits to the bottom line.
Gross non-performing assets (GNPAs) are declining due to lower slippages, steady recoveries & upgrades, write-offs, and transfer to asset reconstruction Companies (ARCs).
The provision cover has remained high at 75 per cent and above for most banks at the end of December 2022.
Another rating agency CRISIL said GNPAs are expected to touch a decadal low of sub-4 per cent at end of March 2024 from 4.2 per cent a year ago.
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