Banking Sector: Q4FY14 Preview
Waseem Ahmad / 14 Apr 2014
Due to slow economic growth,higher inflation and rupee volatility, the Indian banking performance has remained under pressure. During Q3FY14, the banks have witnessed deterioration in its assets quality and provisioning was the major concern, especially for the public sector banks. On the other hand, private banks were comparatively good. During the quarter, provisions for PSBs increased by 38% y-o-y while NPAs have also shown some sharp increase in its numbers.
In the fourth quarter of FY14 too, economic scenario remained gloomy as the IIP data for the month of February 2014 stood at 172.8 against 182.20 in January, showing a contraction of -1.9% against 0.8% in January. However, the political scenario owing to general elections and tight monetary policy have worsened it.
Looking at the current economic scenario, we expect subdued performance by banks in Q4FY14. Net income of the banks is expected to decline due to subdued treasury profit as well as higher provisions. Further, private banks are likely to perform good on account of low provisioning requirement and less exposure to stressed (risker) sectors. Public sector banks might not witness that good of a performance as they require more provisioning and have higher stressed (risker) sectors like infrastructure, agriculture and power sector where NPAs have increased sharply. Public sector banks have an exposure of 10-12% in agriculture, 13-15% in infrastructure and around 14% in power sector of its total lending. We expect fresh slippages to increase for PSBs during Q4FY14 due to high exposure in power and infrastructure sectors. We also expect the restructuring to remain high as the restructuring pipeline continues to pile up. However, Net Interest Margins (NIMs) are expected to remain stable Q-o-Q with marginal positive bias as banks are more comfortable on the liquidity front, post strong inflow of Foreign Currency Non-Resident (FCNR) deposits.
On the asset quality front, we expect some deterioration in the asset quality of private sector banks resulting into higher credit costs. On the other hand, the NPA numbers of public sector banks are expected to look positive on account of aggressive recovery and sell-down to Asset Reconstruction Companies (ARCs).
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