Loan Growth, Higher Spreads, Lower Costs to Boost Banks’ Q1 Financial Results

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Indian banks are expected to post strong core earnings growth in the June quarter, with good traction in advances, improving margins and lower credit costs. However, rising yields could lead to market price losses, which would affect earnings momentum.

Almost all analysts expect credit growth for the banking system to be above 12%, largely driven by private banks. Net interest margins (NIM) could also edge up 3%, largely due to better net interest income and a rising interest rate cycle.

Other income could decline 27% sequentially due to lost cash and lower expenses, offset by lower operating expenses.

“Overall banking profit after tax (PAT) could be down 11.5% QoQ; the main things to watch would be the margin outlook, indications of increased deposits for some banks and the loss of cash “, said Gaurav Jani – research analyst, Prabhudas Lilladher.

Among the frontline banks, they are expected to see strong PAT growth while they may see a marginal decline in PAT and the NIM is expected to remain within the range. could continue the improvement in loan growth, even if the PAT could decrease QoQ. could maintain its loan growth momentum as retail continues to gain momentum while Axis margins are expected to improve.

“We believe better credit growth, along with higher interest rates, should be a positive margin for banks that have a higher share of floating rate portfolios, including mortgages,” he said. said Anand Dama, an analyst at

. “Additionally, asset quality is on the mend, with the risk of a new NPA cycle remaining low, which should lead to healthy profitability and yield ratios for banks. Valuations have also corrected by significantly, which provides a margin of safety.”

Overall slippages, recoveries and provisions could normalize sequentially while gross bad debts could decrease. Analysts expect the overall GNPA ratio to decline sequentially by 20 basis points to 5.2% in the June quarter, driven by lower slippages reflecting a weak EMI rebound rate at 22% , better retail recovery trends and higher losses with banks sitting on excess provisions .

“Asset quality should be less of a concern with the confidence shown by management as inflow activity shows improving trends,” said Kajal Gandhi, analyst at

. “Stress behavior in the MSME segment needs to be monitored, as the increase in interest rates and the end of the moratorium may have increased the pressure.”

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