Q4 PSB Snapshot: Bond Yields May Reduce Cash Income; the quality of assets in the eyes


Public sector banks (PSBs) could surprise the streets with healthy figures for the March quarter (Q4FY21), weak profits from the previous year, lower provisioning in this quarter and resolution of major accounts that can support results, analysts say. However, compared to their private peers, PSBs might have to take a harsher hit when it comes to repaying interest on interest (loan moratorium case), which could lower their net interest income. (NII), they fear.

On the stock markets, the Nifty PSU Bank index outperformed the NSE by jumping 23% in the quarter under review, against a 5% rally in the Nifty50 index, according to ACE Equity data.

Expectation of net profit

Analysts are bullish on PSB’s results on the back of a favorable base on NII, a seasonally higher expense quarter and some recoveries from Bhushan Power. Global brokerage Nomura, for example, expects State Bank of India (SBI) and Bank of Baroda (BoB) to cumulatively report a 233% year-on-year improvement in net profit to Rs 10,232.2 crore, while those of HSBC expect cumulative. PAT of the two banks to increase by more than 100% over one year

Among national brokerages, Kotak Institutional Equities (KIE), which tracks a total of five PSBs including SBI, BoB and Canara Bank, expects the overall PAT of banks covered by its coverage to increase by 142% in year-over-year. This would be driven by 240% annual growth in BoB profits, over 100% growth each in SBI and Canara Bank, and Punjab National Bank profit in T4FY21 compared to a loss in T4FY20.

Spoiling the party, analysts say, could be a rise in bond yields that could reduce cash gains. “The 10-year bond yield rose 30 basis points while the 5-year and 1-year yields climbed 92 basis points and 35 basis points, respectively, on a QoQ basis. We expect banks to record lower sequential gains, although state banks have the leeway to record unrealized gains on hold-to-maturity (HTM), ”notes Elara Capital .

KIE analysts put the BoB’s cash income at Rs 128 crore, compared to Rs 925 crore in Q3FY21. For SBI, Canara Bank and PNB, the same is set at Rs 636 crore, Rs 347 crore and Rs 649 crore, respectively, compared to Rs 959 crore, Rs 1509 crore and Rs 1,243 crore reported in the December quarter.

Loans and NII

At the industry level, Emkay Global analysts estimated credit growth of 7% year-on-year and 4.6% QoQ in the fourth quarter of fiscal 21 for banks covered by their coverage for the period under review. “Our channel audits and discussions with management suggest continued and healthy growth in the mortgage, car, tractor and card industry, while commercial vehicles (CVs) and personal loans (PL) remain slow ”Said the broker.

Individually, Prabhudas Lilladher estimates 7% year-on-year growth of SBI’s loan portfolio to Rs 24.88 trillion, 42% year-on-year growth in GNP to Rs 6.7 trillion and 6% year-on-year growth. the BoB’s annual rate of 7.31 trillion rupees.

Factoring in a 10-12% annual improvement in deposits, NII is expected to grow 33% year-over-year on an aggregate basis for the banks mentioned above, the brokerage believes. Of these, the NII of GNP could increase by more than 80 percent year-on-year while that of the SBI and the BoB could grow by up to 27 percent year-on-year.

“The Net Interest Margin (NIM) will decrease the QoQ for all banks, but more for public banks, due to the interest repayment on interest. In addition to state-owned banks, NIM will also decrease due to the reversal of interest on pro forma non-repayable loans, ”said Elara Capital.

Asset quality trends

Despite the Supreme Court’s final judgment in the loan moratorium case lifting the freeze on the NPA classification, Nomura expects a positive image of asset quality.

“While lenders are likely to paint a positive picture of asset quality, the combination of the 0-2 SMA buckets will be essential. However, it’s fair to remind investors that year-end usually removes SMA-2 and increases SMA-0. The position on restructured loans and disbursements under ECLGS will also be important, ”he added.

Those of Elara Capital further pointed out that the restructuring in the quarter may be less than the proposed restructuring the banks disclosed in the third quarter as a few companies pulled out.

“We believe that Shapoorji, Future Retail, SREI Group, Vodafone Idea are the only four large corporate accounts under pressure that Shapoorji has been restructured as the deadline for Future Retail ends in April. The takeover of Bhushan Power and a few other smaller NPLs will contribute to the profits of state banks, ”the brokerage added.

HSBC would monitor future growth prospects and asset quality performance as a further surge in Covid-19 infection rates and large states imposing activity restrictions could hamper economic recovery.

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