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'Dec quarter to be weak for banks, solid for NBFCs'

Monday, January 08, 2018

Indian banking sector is likely to report weak earnings growth in the December quarter owing to elevated loan-loss provisions, while NBFCs are expected to post strong results, says a report. According to a report by Kotak Institutional Equities, the negative impact from treasury and bad loan provisions are expected to lead to weak performances for the banking sector, while steady improvement in demand conditions will benefit NBFCs.

"We expect banks to report weak earnings growth due to lower treasury contribution and elevated loan-loss provisions," Kotak Institutional Equities said in the research note. It further added that non-banking financial companies (NBFCs) are expected to deliver 30-50% earnings growth on account of a low base, liability-side benefits and steady improvement in demand.

NBFCs are expected to see strong operational trend going forward driven by festive demand pick up, marginal quarter- on-quarter improvement in housing finance disbursements due to implementation of RERA/GST and benefit of falling borrowing costs, it added.

Citing most recent data for the banking sector till September 15, the report said though loan growth has marginally improved to 7% year-on-year from 4-5% in 2016-17, it is much below the pre-demonetisation level of 9-10%.

Moreover, loan disbursements to the corporate segment have fallen sharply, owing to a sharp slowdown in fresh investments and going by the recent data on corporate cycle, this trend is unlikely to reverse in this fiscal.

"This is hurting public banks given that their exposure in the corporate book is more than 50% of loans," it said. According to the report, the medium-term growth outlook for corporate loan growth remains "weak" and interaction with market participants suggests intense competition within banks to chase top-rated corporates both in the loan and bond markets.

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