Mumbai: The banking sector, led by the state-run ones, is set to report a whopping 5-35 percent drop in net profits in January-March period of the past fiscal due to wage revisions, tax reversals and lower core income, says a research report.
Bank of America-Merrill Lynch in its earnings preview said banks are unlikely to deviate much from past. State-run banks are set to report decline in headline profits but private lenders will be reporting good numbers.
"We are likely to see state-run banks' earnings disappointing at net profit level with a decline of 5-35 percent y-o-y, as they are to provide for wage revisions, and many of them had tax reversals/write-backs in Q4 of last fiscal owing to higher provisions." it said.
Also, "operating earnings for most state-run banks are to be largely flattish driven by better topline (flattish to 20 percent growth) being offset by lower non-interest income," BofA-ML report said.
On the other hand, "private banks are set to report net profit growth of 20-30 percent driven by retail lending,as most of them did not cut retail rates though their higher share in overall loan growth is mixed. Also, asset quality of most private lenders will be largely comfortable."
On State Bank, the report said, "the largest lender may surprise on volumes, recoveries, but margins will be weak, showing a 7-8 percent y-o-y decline in net profit due to higher wage provisions and decline in margins. However, key to watch for in SBI will be volume and recoveries trend."
Among other larger state-run banks-- PNB, BoB, BoI and Canara-- headline earnings are expected to be down by 5-25 percent owing to higher tax outgoes, while their operating profits may be flat to 25 percent. Only OBC may report headline profit growth in Q4, as base was weak due to higher NPLs, says the report.
Overall, the main data to watch out for will be slippages, margins and recovery trends. Among private players, HDFC Bank and ICICI are likely to report stable numbers, while Axis, Yes, IndusInd are key to watch, it adds.