Banks December Quarter Of 2012 Preview

The business growth of most of the companies of India Inc have seen a muted growth in the past, after economy faced various headwinds. The Banking space, which is directly correlated with the economy, is also facing pressure in terms of growth. This is evident from the latest press release by the Reserve Bank of India (RBI) of Scheduled Banks Statement of Position in India which suggest that banks are seeing strongly muted business growth this fiscal, particularity for the December quarter of 2012.

During this fiscal (till 14th December, 2012) deposits and advances grew by 5.56 and 5.73 per cent. Further, if we look at the December quarter (till 14th Dec 2012) the deposits growth of banks was a meagre 0.35 per cent while advances grew by 3.18 per cent. This is way below the RBI projections of deposits and advances growth of 15 and 16 per cent respectively for FY2013.

This helps us to understand that the bank's December quarter numbers would not be encouraging, especially in terms of their business growth. Having said that, we believe that private banking players would perform better compared to the public sector banks. Private banks like HDFC Bank, ICICI Bank, Axis Bank, ING Vysya Bank are among the banks which may continue to see good growth.

Banks would continue facing pressure on their asset quality for the said quarter. Looking at the past trend, we believe that public banks would continue facing major headwinds and they may see deterioration in their Gross and Net NPAs. In case of Bank of Baroda (BOB), its CMD M.D.Mallya retired in November 2012. A change in management may result into higher provisions and the bank may also witness some deterioration on its asset quality. In the past, we have seen the same with banks like State bank of India and Bank of India, which have disappointed the streets after a management change.

In its October 30, 2012 monetary meet the RBI asked banker to increase the provision for restructured standard accounts to 2.75 per cent from the existing 2 per cent. This would result into higher provisions, which may impact the bottomline of the banks. With the RBI keeping the rates unchanged throughout the quarter and with banks not passing on much to the consumers, we believe that Net Interest Margin (NIM) for most of the banks would improve or would remain more or less stable on a sequential basis.

Further, banks are currently raising capital to meet their capital adequacy requirement. Many banks have raised capital and others are in the process of doing so in the March quarter of 2013. We at DSIJ also have also done a Mindshare article on the same “Banks Raise Capital To Meet CAR Requirements”. Investors have to watch the bank's capital adequacy ratio, which may see an improvement on account of raising funds.

Nevertheless, one has to watch out for management guidance and their outlook going ahead. We continue to believe that private banks would be performing better than public banks in the December quarter too, on account of stronger asset quality and good business growth. Further, the interest rate reversal in the March quarter of 2013 is a positive trigger for the space.

As per BSE updates, so far only two banks have announced when they are going to post their Dec numbers. IndusInd Bank and HDFC Bank will post their numbers on 9th Jan and 18th Jan 2013 respectively. We would keep you posted about the results on our website.