Net slippages of standard into bad loans for the public sector banks are expected to stay below peak levels in Q4, while restructuring activity is likely to remain high, according to a report by Barclays.
Bank of Baroda is likely to report stable performance in the upcoming fourth quarter results, while State Bank of India, Punjab National bank and Bank of India will continue to report a drop in profits to the tune of 14 per cent, 7 per cent and 5 per cent, respectively year-on-year.
Slippages are estimated at 1.12 per cent for the public sector banks and 0.87 per cent for private sector banks in Q4 FY14. For FY15, the financial service firm has projected slippages at 1.5 – 2 per cent for public sector banks and about 1 – 1.2 per cent for private sector banks.
However, private sector banks are estimated to grow profits of 15 per cent and above during the quarter. “We do see recovery in the asset quality but it will be slow. New restructured assets will be stabilised, though it won’t be improved either,” said Anish Tawakley, Director at Barclays Securities (India).
For the top three private banks – ICICI bank, HDFC bank and Axis Bank – have seen relatively less restructured assets and therefore lesser chance of assets slipping into non-performing assets (NPAs).
Tawakley also favoured investing in banks which are better capitalised. “Given the market situation, raising capital may not be easy and therefore investors must buy banks with adequate capital adequacy ratio,” he said.
He added that rates should start easing by the second half of the fiscal year as RBI has shown no signs of reduction anytime soon with policy likely to remain tight in this economic cycle.
For the banking sector, the credit and deposit growth is expected to be at about 15 per cent each for the fiscal year 2015.