As per the analyst report, due to a slowdown in credit demand in the second quarter of this fiscal, Public and private sector banks have been experienced an average growth rate of 10% in their earnings. Analysts from Kotak Institutional Equities and Sharekhan had said that public sector lenders are likely to have experienced lower growth rather than their private sector counterparts due to the need for higher provisioning against loan defaults. They also expressed that if the public sector banks complete the transition to system-based non-performing assets recognition, the additional provisioning will hurt their profits. The earnings are expected to grow 10% for the overall system.
In Q2, the slower credit growth, increase in NPA provisions and the market-to-market provisions on investment book are expected to adversely affect the growth in earnings. The Sharekhan report noted that the slowdown in credit off take would hurt the net interest income of banks, as it would grow by only 2.9% on a sequential basis. Pratip Chaudhuri, the chairman of country’s largest lender, State Bank of India had said that credit grew by a 4.5% for the system in the second quarter, while for SBI, it stood at 5%. To curb inflation, the Reserve Bank has hiked key rates for 12 times in the last 20 months, has set a credit growth target of 18%.
With respect to net interest margins (NIMs), the analysts feel banks will not be hurt. Reports said that non-interest or fee-based income will be lower, while volatility in the markets will hurt profits, as realization from investments is low and provisioning has increased. The retail loans such as home loan, personal loan, car loans etc. are experiencing a slow down in their business.