Mumbai: Banks are expected to deliver yet another soft quarter with modest earnings growth in Q2FY25. While the provisional numbers released by several private sector banks including HDFC Bank, Yes Bank, Bandhan Bank for the September quarter showed higher deposit growth than credit growth, for public sector banks such as Union Bank, Bank of India, Union Bank, credit growth continued to outpace deposit growth. According to analysts, at the system level deposit growth would remain range bound and trail credit growth. Margins are expected to be soft due to seasonality and tighter liquidity.
Banks would report marginal treasury gains led by a decline in bond yields, which should partially support pre-provision operating profit growth.
Anand Dama, head BFSI (Research) at Emkay Global said, “We expect the second quarter to be weak for the banking sector mainly due to slower credit growth, continued margin contraction and asset quality deterioration in unsecured loans including cards, low ticket personal loans and Micro Finance loans.”
The systemic credit growth as of September 20, 2024 continued to remain healthy at 13 per cent year on year while the systemic deposit growth stood at 11.5 per cent. As a result, the gap between credit and deposit growth has narrowed. Systemic loan to deposit ratio stood at 78.2 percent as of Sep 20, 2024 versus 77.2 per cent in Sep 2023 and 78.3 per cent in June 2024.
Slower deposit growth, continued moderation in unsecured retail along with slower corporate credit growth is resulting in moderation in loan growth.
Net interest income (NII) is expected to be weak, as NIMs are expected to decline by 5-10 bps q-o-q and loan growth has started to moderate. NIM is the difference between interest earned and interest expended.
“We expect banks in our coverage universe to report a 10 percent y-o-y growth in earnings in Q2FY2025E. Credit cost is expected to normalise gradually but would still remain lower however it could inch up for some of the banks due to slightly higher slippages in unsecured loans and MFI segment along with lower recoveries and upgrades,” said a report from Sharekhan.
Axis Securities said, “We expect earnings momentum to decelerate and banks including small finance banks under our coverage to deliver a modest earnings growth of 7 per cent year on year.”
“The focus will continue to remain on (i) the outlook on credit growth, (ii) comments on NIMs bottoming out, and (iii) asset quality concerns in the unsecured segments, particularly MFI,” it added.
