Key points
- 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.