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Indian Banks' Q3 preview: Rising NPAs, sluggish loan growth to weigh on earnings

By Religare
Indian Banks' Q3 preview: Rising NPAs, sluggish loan growth to weigh on earnings
The Oct-Dec quarter earnings season is expected to provide hint on how fast the economy will grow in second half of the fiscal. While there are mixed forecasts among analysts about the performance of overall corporate sector in third quarter, there has been quite a strong belief that banking sector will continue to reel under stressed assets and weak loan growth.

According to an Economic Times report, most of the private sector banks may report slower growth in profits in Oct-Dec quarter, while the public sector banks may post around 10 per cent drop in profits owing to rising provisions against the bad loans.

In the Oct-Dec period, banks also faced sluggishness in lending as credit growth in December fell to below 15 per cent as against 18 per cent in September 2013. The ET report attributed this drop to the reduction in short-term rates which led large borrowers to shift to bond market. Also, the drop in shirt term rates might not have helped banks improve their margins as they remained focus on maintaining asset quality rather than high-yield lending.

PSU Banks may continue to be the matter of concern for banking regulator with worsening asset quality. At the end of September 2013 quarter, average stressed assets which include net NPAs and restructured assets, constituted 10.2 per cent of the loan book of all PSU banks, reported Economic Times.

Dion Global Solutions Ltd.

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