>BANKING SECTOR: All eyes on restructuring (Q4FY12 Results Preview)

Incremental restructuring and pipeline will dominate the attention of investors even as other asset quality matrices are likely to remain largely stable. Pre-provisioning profit growth for PSBs estimated to be strong (25% YoY for PSBs ex-SBI), despite sequential pressure on NIMs and material moderation in credit growth, led by distorted base (pension provisioning and –ve one-offs for SBI). However, relatively higher provisioning cost for PSBs led by slippages and incremental restructuring should lead to continuation of the divergent earnings performance trend among private banks and PSBs. HDFC Bank and ICICI Bank should lead private banks while SBI should fare relatively better among PSBs.


■ All eyes on incremental restructuring and pipeline: In the light of moderating economic activity, we expect asset quality trends to remain the key focus area for the next few earnings seasons. Incremental restructuring is expected to increase as banks try to avoid slippages into NPA. Trends in cases referred to CDR corroborate our long held concern of material increase in restructured assets. This also implies that deterioration in other matrices (GNPA, slippage etc) will be avoided for now. We look forward to clarity on incremental restructuring pipeline as well as status of SEB restructuring from management of banks.


■ Some pressure on NIMs likely: Not withstanding the strong pricing power aided by tight liquidity, we expect NIMs to witness marginal pressure (5-10bps) on a sequential basis, especially for PSBs. The firm wholesale rates, fuller impact of deregulation of NRE deposit rates, some impact of priority sector lending and selective downward tweaking of lending rates could collectively force the NIMs downwards, albeit marginally. Sequential pressure on NIMs and dramatic slowdown in loan growth should keep NII growth in higher single digits for PSBs ex-SBI compared with ~17% YoY growth estimated for private peers.


■ Base distortions: The distorted base effect (pension provisioning and –ve one-offs for SBI) will help PSBs report strong growth in pre-provisioning profit (33% for PSBs vs 20% for private peers). However at bottom-line level, we estimate private peers to report 24% YoY growth on aggregate basis compared with 9% YoY growth for PSBs ex-SBI. Among the banks under our coverage, we expect HDFC Bank and ICICI Bank to report stronger performance while Bank of India and SBI should lead from bottom-line growth perspective among PSBs.

RISH TRADER