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MOSL: FINANCIALS – BANK 3QFY19 Preview-Enabling macro to drive strong earnings

FINANCIALS – BANK 3QFY19 Preview: Enabling macro to drive strong earnings; Margin cycle set to recover, treasury performance to improve significantly

 

• Earnings growth to pick up; private banks to report 25% YoY growth: We expect banking system earnings to pick up sharply, led by stable/expanding NIMs, moderate credit costs, gains on treasury/corporate bond portfolio and likely reversal of MTM provisions. Margin cycle is set to recover as the loan book re-prices over 2HFY19, offsetting the impact of higher cost of funds. We expect private banks to report ~25% YoY PAT growth, led by a pick-up in NII and moderation in credit costs. PSU banks will likely return back to profitability, barring PNB, which will continue making residual provisions toward the fraud account.
• NII to grow at 20.3% YoY/11.5% YoY for private/PSU banks; mid-sized private banks to maintain strong traction: We expect private banks to record NII growth of 20.3% YoY, led by stronger growth in mid-sized private banks – IIB (~25% YoY), YES (~39% YoY) and RBL Bank (~38% YoY). Among PSUs, SBI/INBK are expected to report strong ~15%/12% YoY growth in NII, while BoB and PNB are likely to report modest growth.
• Systemic credit growth at multi-year high; private banks to maintain steady momentum: Systemic credit growth has improved to 15.1% YoY, led by continued traction in retail/working capital loans. We estimate private banks to maintain steady momentum in loan growth and further expand their market share (from the current levels of ~31%). Revival in credit growth, along with improved pricing power as fallout of liquidity crisis being faced by NBFCs, is expected to help maintain steady NII growth in the banking system.