This is what you can expect from banks in Q4 earnings

Moneycontrol Bureau

Lenders are yet to break free of the clutches of the economic slowdown. Banks' fourth quarter (January-March, FY13) earnings are unlikely to have any positive surprises. Private lenders would continue to perform well while their public sector peers can see some moderation in net interest margins. The credit quality pain is not expected to change the trend.

"In January-March quarter, we will continue to see accretion of NPLs," Ananda Bhoumik Director (Banking) India Ratings told moneycontrol.com.

"The trend that you have seen till December will probably persist. A few lenders like Canara Bank and Allahabad Bank have guided that they will bring down bad loans. Others are hopeful that it is bottoming out. Also, there is a very strong restructuring pipeline. Bad loans will continue to rise till September," he said.

Employee costs

According to a report by brokerage house Motilal Oswal, the employee related expenses are likely to grow by around 20% both on a year-on-year basis and quarter-on-quarter basis for state-owned banks.

"During the quarter, banks are expected to provide for the new wage hike related provisions for the entire three months (for a few it would be for five months), compared to two months in 3QFY13," said the report suggesting that adequate capitalization, strong liability franchise (deposit base) and prompt recognition of stress are the triggers to bet on a bank.

Credit growth

Banks loan books have shown a muted growth so far this year. The latest RBI data showed, banks' non-food credit grew a little more than 14% as on March 22, 2013; which is below the RBI projection of 16% in FY13. Analysts too expect muted growth in bank loans for the full year.

"We expect loan growth to come at 15% for FY13, marginally lower than RBI's revised credit growth projection of 16% on back of subdued credit off-take on corporate segments," said a report by Kotak Securities.

"Expect NIM to remain stable QoQ with negative bias. We expect strong treasury profit during Q4FY13 as yield curve movement was volatile during the quarter. However, we are forecasting subdued core fee income on back of muted loan growth."

Lackluster economy

Meanwhile, India's third quarter GDP growth stood at 4.5%, a 15-quarter low. The persistent gloom in growth outlook coupled with policy woes in select sectors is potent enough to thwart banks' growth prospect. Moreover, the rate of inflation has not yet fallen into RBI's comfort zone. The central bank also does not see any further room for interest rate cuts.

"PSU banks are already trading at depressed valuations. Even, higher number of likely new entrants in the sector, creates a structural impediment for PSU banks' medium-term re-rating, as we expect them to lose market share in any case, considering their capital crunch," Vaibhav Agarwal, vice president research, Angel Broking.

saikat.das@network18online.com