With RBI Moratorium In Place, Q4 Results Likely To Be Stable For Banks

The three-month loan moratorium by the Reserve Bank of India is likely to give a reprieve to banks, which will start announcing their fourth quarter results later this month. But with the national lockdown and the Covid19 pandemic impacting businesses, the road ahead could be rocky.

“The fourth quarter should be uneventful, but it is more that preparing for the next quarter is more important. Asset quality is likely to be largely stable,” said Sanjay Agarwal, Senior Director, CARE Ratings.

“With a moratorium on loan repayment, we are less inclined to attach serious importance to the reported earnings of banks for this and the next quarter. With that framework in mind, we expect banks to show healthy earnings growth, primarily due to lower provisions, lower tax rate, and higher treasury income,” said Kotak Institutional Equities in a report.

While loan growth has muted significantly, analysts said that asset quality and non-performing loans of banks are also likely to have improved in the quarter ended March 31, 2020, on the back of a few corporate resolutions through the IBC framework and one-time settlements that usually accelerate in the fourth quarter.

According to the latest data as on March 13, loan growth had slowed down further to about six per cent year-on-year when compared to eight per cent in the third quarter of last fiscal.

Private sector banks are expected to start announcing their results for the January to March 2020 quarter as well as financial year 2019-20 by the third week of April, followed by public sector banks in May.

Many private sector lenders such as IndusInd Bank and RBL Bank have already indicated that the lockdown has impacted recovery efforts and that there could be some amount of near-term stress, although their operating metrics have remained robust.

In a recent report on the potential impact of Covid19, KPMG said the profitability of banks will be under pressure due to reduced offtake of loans, increased delinquencies post the moratorium period, depressed net interest margins in a low interest rate regime, fall in transaction banking, and drop in fee income.

“These could be partially offset by lowering the cost of funds, harvesting profits from the SLR portfolio, and medium-term measures around cost optimisation, digitisation and focussing on non-interest based revenue streams,” it said.

Apart from the start of the 21-day national lockdown, the January to March quarter for banks was an eventful period with the AGR order for telecom operators as well as the YES Bank crisis.