We expect Indian
public sector banks (PSBs) excluding State Bank of India (SBI), to
report a healthy year-on-year (y-o-y) growth of 20% in their net
interest income (NII) and a strong growth of 32.5% in their
earnings for Q2FY2007. SBI, an exception, is likely to report a
decline in its earnings due to high loan recoveries in the same
quarter last year.
The private sector
banks are likely to continue their strong performance, as their
earnings are likely to grow at 27.4% year on year (yoy) for the
same period.
We expect the loan
book of the PSBs to grow at a healthy rate of 18-20% and that of
the private sector banks at 40-50%.
The net interest
margins (NIMs) are expected to remain stable as most of the banks
have raised their prime lending rates over the last two quarters.
The same should help them to mitigate the loss of income on
account off non-payment of interest on cash reserve ratio (CRR)
balances with the Reserve Bank of India.
The strong
performance at the operating level is likely to be aided by the
declining 10-year government bond yield, which should help the
PSBs to reduce their mark-to-market losses to nil or a negligible
level.
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