Q4FY17 Earnings: Banking sector outlook

As Q4 earnings season has kicked off, banking sector earnings are also to kick start with Yes Bank and IndusInd Bank reporting tomorrow. The Q4 earnings for banking sector are estimated to show mixed performance across the board.

To begin with NII (Net Interest Income) of many private sector lenders is expected to show better performance with rising retail lending in the portfolio. However, poor corporate credit demand, especially after demonetisation may hit NII for public sector banks and some private sector banks too.

In terms of asset quality, the slow pace of rise in slippages will provide some comfort for the banks. However, NPAs are expected to rise with tepid performance from corporate sector. Despite introducing schemes like SDR and Sustainable Structuring of Stressed Assets (S4A) very few assets became subjected to its mechanisms. Banks also might have to liquidate assets to de-leverage their balance sheet.

Advances growth has taken a hit in the March 31 ended quarter with weak demand from corporate sector. Companies have resorted to other non-banking resources such as bonds, equities and NBFCs also. According to industry reports, banking credit to commercial sector has fallen to 22% from close to 45% four years ago. Key sectors like metals, infrastructure and textiles have seen decline in credit demand despite good GDP numbers. However, banks will continue to focus on retail and SME segment credit growth as the respective segments are expected to perform better than the corporate sector.

Ageing NPAs and rising provision requirements are expected to show subdued performance in terms of profitability. Industry reports suggest some PSUs are also expected to see capital adequacy pressure.