Banks are likely to report 14.5 per cent growth in their second quarter earnings, notwithstanding rising bad assets and debt recast, said a report by brokerage firm Kotak Institutional Equities today.
The report, however, says the growth in the core net interest income component for banks will slow down to 13 per cent for the system, with state-run banks logging in at 9 per cent and private lenders at a much faster clip of 22 per cent.
The report also notes that a rise in treasury incomes will lead to an overall 11 per cent rise in non-interest income for the system, but the core fee income will be muted as the corporate activity remains dull.
The brokerage expects the net interest margins to remain under pressure.
The full impact of the base rate cuts of May 2012 will also start reflecting in the results, it notes.
On the critical question of asset quality, which has assumed importance due to the gloomy economic conditions, Kotak has a negative outlook, even though there have been some silver lining like the recent Rs 1.9 lakh crore SEB loan recast.
“Retail portfolios should see marginal rise in stress, however, the corporate portfolio, especially in the SME and mid-corporate segments are expected to report higher stress.
“Incrementally, we believe stress in the infrastructure value chain should begin to be reflected in the current quarter; exposure to several other segments like textiles, iron and steel has not yet provided respite,” says the report.