Earnings preview: Bad loan, MTM provisions may extend banks’ losseshttps://indianexpress.com/article/business/banking-and-finance/earnings-preview-bad-loan-mtm-provisions-may-extend-banks-losses-5252639/

Earnings preview: Bad loan, MTM provisions may extend banks’ losses

KIE observed, adding that retail-oriented banks, such as HDFC Bank, IndusInd Bank and City Union Bank, are likely to report stable performance.

Earnings preview: Bad loan, MTM provisions may extend banks’ losses
KIE also said conditions for an improvement in banks’ net interest margins seem to be falling in place, given that interest rates and loan growth are both rising.

Banks are likely to report losses in the April-June quarter due to high provisions for bad loans as well as mark-to-market (MTM) provisions on their investment portfolios, according to most analysts tracking the sector.

“We expect banks to report another quarter of steep loss… On interest rates, there are two developments for the quarter resulting in MTM provisions — a 50-basis point (bps) increase across the yield curve and a tightening of rules in the valuation of state g-sec instruments from fixed mark-up to market prices,” Kotak Institutional Equities (KIE) said. The brokerage, however, sees an improvement in loan growth — pegged at 12 per cent year-on-year. Coupled with increases in lending rates, this should aid a recovery in net interest income (NII),

KIE observed, adding that retail-oriented banks, such as HDFC Bank, IndusInd Bank and City Union Bank, are likely to report stable performance.

KIE also said conditions for an improvement in banks’ net interest margins seem to be falling in place, given that interest rates and loan growth are both rising.

“While we have seen fresh lending rates move up marginally, average lending rates are still 60-80 basis points (bps) above the fresh lending rates. This gap needs to narrow down as the portfolio is still witnessing pressure on the downside while the cost of funds has already started to increase,” the KIE report stated.

In a report released last week, ratings agency Icra said 70 large accounts, mainly from the power, engineering, procurement and construction (EPC) and telecom sectors and aggregating Rs 3.8 lakh crore, will require resolution by September 1, 2018, as per the revised framework for resolution of stressed assets notified by Reserve Bank of India (RBI) in February 2018.

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“Of these cases, 34 cases totalling 41,000 MW of power generation capacity with a total debt of around Rs 2 lakh crore will require a resolution. Of the above Rs 3.8-lakh-crore exposure, Icra estimates that 92 per cent is already classified as NPA by the banking system,” the report stated. —FE