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MOSL: FINANCIALS – BANKS 4QFY19 PREVIEW-Earnings set to improve driven by corporate banks

Financials – BANKS 4QFY19 Preview: Earnings set to improve driven by corporate banks; Margins to remain stable; Deposits traction – a key monitorable

 

• Corporate banks to drive earnings recovery; expect 79% YoY PAT growth for private banks: We expect banking system earnings to pick up sharply, led by stable/expanding NIMs, moderate credit costs, stability in fee income and treasury book. Margin cycle is set to recover as loan book re-prices over FY19, offsetting the impact of higher cost of funds. We expect private banks to report ~79% YoY PAT growth, led by a sharp pick-up in profitability of AXSB and ICICIBC as the provisioning requirement moderates. However, PAT growth is likely to remain muted at ~2% QoQ, as banks will be making higher provisioning towards IL&FS exposure (like IIB) and the resolution of key NCLT cases is getting delayed. PSU banks will likely report PAT growth of ~2% QoQ on the back of lower slippages and a decline in the provisioning requirement, though we remain optimistic on the earnings trajectory during FY20/21E.
• NII to grow at 21%/19% YoY for private/PSU banks; mid-sized private banks to maintain strong traction: We expect private banks to record NII growth of 21.3% YoY, led by stronger growth in mid-sized private banks – IIB (~20% YoY), YES (~28% YoY) and RBL Bank (~40% YoY). SFBs Equitas and AUBANK would continue reporting healthy growth of 39% and 32%, respectively. Among PSUs, PNB/BOB/SBIN is expected to report strong ~45%/23%/15% YoY growth in NII, while INBK is likely to report modest growth.