New Delhi [India], October 7 (ANI): Bank loan growth is expected to accelerate to 19 per cent year-on-year in the September quarter, but profit growth may remain much slower at around 6 per cent as pressure on lending margins and a sharp fall in treasury income offset the benefit of stronger credit growth, according to a Jefferies India Financials Equity Research report.
Jefferies expects aggregate loans of the large banks covered in its estimates to rise 19 per cent year-on-year in the second quarter of FY27, while net interest income (NII) is projected to grow at a slower 9 per cent. Aggregate profit after tax is estimated to increase just 6 per cent year-on-year.
“We expect core profit (PBT - treasury) of large banks to grow 15% YoY,” Jefferies said in its September-quarter preview.
The divergence between strong loan growth and relatively modest profit growth comes as banks face pressure on net interest margins (NIMs), even as credit demand remains strong.
Jefferies said pre-quarter updates pointed to “strong loan growth, managed deposit growth aided by FCNR-B,” but added that the inflows were expected to cause a temporary drag on margins because of the time taken to deploy the funds into loans.
Another drag on reported earnings is expected to come from treasury operations. Jefferies estimates aggregate treasury profit for large banks at Rs 55 billion in the September quarter, down 58 per cent from Rs 131 billion a year earlier.
“Treasury income will fall sharply,” the report said, with elevated bond yields during the quarter limiting gains from banks' investment portfolios.
However, underlying banking trends remain supportive. Jefferies expects asset quality to improve, with aggregate slippages estimated to decline sequentially to Rs 310 billion from Rs 333 billion in the June quarter.
The report described the outlook as one of “healthy core profit growth with softer costs & better AQ,” indicating that lower credit costs and improving asset quality could partly cushion the impact of weaker margins and treasury income. (ANI)
Bank loan growth may hit 19%, but profit growth seen at just 6% in September quarter: Jefferies