Banks may post sharp jump in Q2 profit

Mumbai: Indian banks' earnings for the September quarter is likely to see a sharp jump but tempered by higher provisioning in the retail and small and medium enterprises (SME) loan segments that have seen higher delinquencies. Earnings are likely to pick up, led by a recovery in business growth, fee income and a gradual reduction in credit costs."In our view, business and asset-quality normalisation should accelerate in the absence of a severe third Covid wave, but large banks should be the early beneficiaries," said Anand Dama, senior research analyst, Emkay Global Financial Services. "Among the large banks, ICICI Bank remains our top pick, followed by HDFC Bank, Axis Bank and State Bank of India."As per analyst estimates, State Bank of India could post a further decline in bad loans and could see a moderation in credit costs. Private lender ICICI Bank appears firmly placed to deliver healthy sustainable growth, led by its focus on core operating performance. It may utilise higher buffers in case of a possible asset quality impact, industry watchers said. 86827655Exchange filings have shown HDFC Bank has posted strong credit growth in the September quarter and after the embargo being lifted on sanctioning credit cards, the bank is poised for a healthy revival in retail loans.According to estimates released by Motilal Oswal, banks are likely to report earnings growth of 41% in the fiscal year 2021-22.Estimates suggest that ICICI Bank could deliver 16.6% year-on-year loan growth, while Axis Bank and Kotak Mahindra Bank could grow over 9% each.For state-run banks, operating expense is likely to remain elevated on account of the revised guidelines on pension provisions. As per Motilal Oswal's research assistant Nitin Aggarwal, public sector banks are expected to deliver year-on-year profit growth of 35%. "We estimate state-run banks to report improved operating performance, supported by modest business growth and a gradual reduction in provisions. Slippages from Srei Infra are likely to be offset by recoveries from the DHFL resolution."Asset quality could pose challenges with near-term slippages expected in the retail, SME and microfinance segments. Though analysts said there could be a decline over the June quarter."Banks have upfronted some of the recognition of that stress in the June quarter itself and hence, generally, there should be a sequential decline in slippages," Yes Securities said in a note. "There had also been some upfronting of provisions due to which there should be some sequential decline in provisions as well."

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