Banking Sector Q2FY12 Review
Banking Sector Q2FY12 Review Varun Bisht Economist 022-61541942 Rajrishi Singhal Head Policy & Research 022-61541730 Policy & Research Unit, Dhanlaxmi Bank, Trade View, Kamala Mills, PB Marg, Worli, Mumbai 400001
B Banking Sector: Earnings Review Q2FY12 anking sector performance in July-September, 2011, improved with improvement in net interest margins and stabilisation of costs. Banking sector gained with increase in net interest income, as banks passed on the higher interest costs. Performance of state-owned banks improved, but private sector banks outperformed public sector banks during the quarter, continuing the trend visible since April-June. Monetary transmission, as desired by the Reserve Bank of India, was followed aggressively by banks with increases in base rates. Our analysis of the banking sector includes only banks listed on stock exchanges a total of 40 banks, of which 24 are public sector banks and 16 from the private sector. The key highlights of the quarter follows: Overall Banking Performance Improved: Overall banking top-line in July-September grew 32.5% from a year ago compared with 31.7% in April-June. Net interest income in July-September grew 7.6% on a sequential basis. Quarterly net profit rose 11.6% on a year-on-year basis as against a 3.1% decline in April-June. Net profit also improved on a sequential basis by 14.1% in July-September compared with 3.8% rise in April-June. Public Sector Banks Recover: Total income grew 31.6% from a year ago, marginally higher compared with 31.1% in April-June. Net interest income grew 16% from a year ago in July-September compared with 19.6% growth in the first quarter of 2011-12 (April-March). Net profit grew 5.5% on a year-on-year basis as against 14.5% decline in growth in April-June. Private Banks Continue To Outperform Public Sector Banks: Total income grew 35.6% from a year ago compared with 33.8% growth in April-June. Net interest income by and large kept up the momentum and grew 18.3% on a year-on-year basis in July-September, but it was lower compared with 19.3% growth in the first quarter. Net profit of private sector bank moderated but continues to be high compared with public sector banks. Net profit growth stood at 27.6% on a year-on-year basis compared with 30.9% growth in the first quarter. NIM Stabilised Or Improved For Majority Of Banks: Net interest margins improved in July- September for majority of banks due to pass-through of higher cost of deposits. Public sector banks recorded higher improvement in NIMs in the second quarter compared with private banks as they passed on the higher interest costs. Major banks, such as State Bank of India and Punjab National Bank, clocked a rise in NIMs. HDFC Bank registered a marginal decline while ICICI Bank posted slight improvement in net interest margins during the quarter. Axis Bank, Dhanlaxmi Bank, Development Credit Bank, Yes Bank and ING Vysya registered sequential improvement in NIMs. Credit Growth Decelerates: Credit growth of scheduled commercial banks in July-September slowed to 19.5% on a year-on-year basis compared with 20.7% a quarter before. Credit growth eased due to slowdown in industrial activity. Credit growth has fallen further since July-September to 17.32% on a year-on-year basis as on November 30. Deposits Growth Eases: Deposits growth of scheduled commercial banks eased to 17.38% on a year on-year basis in the second quarter compared with 18.69% in April-June. Deposits growth has improved post July-September and now stands at 18.02% on a year-on-year basis as of November 30. Credit To Deposit Ratio: Credit to deposit ratio of scheduled commercial banks declined in July- September to 74.01% compared with 74.76% in April-June as credit growth showed larger moderation compared with deposits growth in July-September.
Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Private Banks Outperform Public Sector Banks in Q2 O verall banking sector performance improved after remaining subdued in previous two quarters. The banking sector s overall performance in July-September registered sequential improvement as public sector banks saw operational costs stabilising. Private sector banks continued to post stellar performance recorded in the past few quarters. On the whole, July-September marked a departure for PSU banks from the under-performance of the past two quarters. The industry s overall top-line in July-September grew 32.5% on a year-on-year basis compared with 31.7% in April-June. Banking sector witnessed rising costs in a period marked by rising interest rates. However, with improving s, due to pass-through of higher interest costs, resulted in income growth of 16.5% on a yearon-year basis in July-September compared with19.5% in the first quarter. Banks net profits also improved by a sharp 11.6% in July-September against a 3.1% fall in April-June. Sequential improvement in both and net profit indicate how banks passed on the higher cost of deposits to customers. All Banks: % YoY % YoY % QoQ % QoQ ` Crore Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q1FY12 Q2FY12 Q1FY12 Q2FY12 130712 143937 151952 162662 31.7 32.5 5.6 7.0 44943 44720 44826 48230 19.5 16.5 0.2 7.6 16806 13939 14468 16508-3.1 11.6 3.8 14.1 Banking sector trends, % YoY 45.0 4 35.0 25.0 5.0-5.0 - Q3FY11 Q4FY11 Q1FY12 Q2FY12 Banking sector trends, % QoQ 5.0-5.0 - - -
Public Vs Private Banks P ublic Sector Banks: Public sector banks improved their performance in Q2FY12 with improvement in net interest income. Also, a majority of PSU banks witnessed a rise in net interest margins. Total income grew 31.6% YoY compared with 31.1% in Q1FY12. Net interest income grew 16% YoY in Q2FY12 compared with 19.6% YoY growth in Q1FY12. saw sequential improvement in Q2 with rise of 7.7% QoQ compared with 0.9% QoQ rise in Q1. Net profit improved after two quarter of negative growth. Net profit growth improved to 5.5% YoY as against decline of 14.1% YoY a quarter ago. Private Sector Banks Total income grew by 35.6% YoY compared with 33.8% YoY in Q1FY12. Net interest income maintained growth momentum by 18.3% YoY in Q2FY12 though lower compared with 19.2% YoY growth in Q1FY11. Net profit saw slight moderation though continues to be high compared with public sector banks. Net profit growth stood at 27.6% YoY compared with 30.9% YoY in Q1. Public Sector % YoY % YoY % QoQ % QoQ `Crore Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q1FY12 Q2FY12 Q1FY12 Q2FY12 Total Income 101138 111754 117844 125523 31.1 31.6 5.4 6.5 34885 34184 34479 37148 19.6 16.0 0.9 7.7 12137 8937 9694 11317-14.1 5.5 8.5 16.8 Private Sector Banks % YoY % YoY % QoQ % QoQ Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q1FY12 Q2FY12 Q1FY12 Q2FY12 Total Income 29574 32183 34108 37139 33.8 35.6 6.0 8.9 10058 10537 10347 11082 19.2 18.3-1.8 7.1 4669 5002 4775 5191 30.9 27.6-4.5 8.7 Public Sector Banking Trends, % YoY 5 4 Private Sector Banking Trends, % YoY 45.0 4 35.0 25.0 - - Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY11 Q4FY11 Q1FY12 Q2FY12
Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Quarterly Trends P ublic Sector Banks: Public sector banks fared poorly in Q4FY11 due to rise in cost of deposits and higher provisioning in the sector. However, since then there has been improvement in the following two quarters as they have passed on the higher interest costs and their employee costs have stabilised. Total income in Q2FY12 grew 6.5% QoQ compared with 5.4% QoQ rise in Q1FY12. Net interest income improved by 7.7% QoQ in Q2FY12 compared with 0.9% QoQ growth in Q1FY12. Net profit improved 16.8% QoQ compared with 8.5% QoQ growth in the first quarter. Private Sector Banks performance improved in Q2 FY12 compared with Q1FY12. Total income grew by 8.9% QoQ compared with 6% QoQ in Q3FY11. Net interest income growth improved 7.1% QoQ in Q2FY12 as against a decline of 1.8% QoQ in Q1FY12. Net profit grew 8.7% QoQ compared with decline of 4.5% QoQ in Q1FY12. PSU Banks, Quarterly Trends, QoQ % Private Banks, Quarterly Trends, QoQ % - - - 5.0-5.0 -
Operating Expenses Stabilised in Jul-Sep Operating expenses stabilised in Q2FY12 for the overall banking sector. Operating expenses growth stood unchanged at 38.3% YoY in Q2FY12. Employee expenses growth came down to 8.6% YoY compared with 17.6% YoY a quarter ago, which helped in stabilisation of overall expenses. Interest costs, on the other hand, grew in Q2FY12 to 48.3% YoY compared with 45.6% YoY in Q1FY12, reflecting the impact of rising interest rates in the system. Other operating expenses declined marginally in Q2FY12 to 19.3% YoY compared with 19.8% YoY a quarter ago. Stable operating expenses growth helped banking sector in improving net profits. With interest rate cycle presumably peaking (if one goes by the RBI s mid-quarter monetary policy review announced on December 16), interest costs should stabilise which would help in capping operating costs. Interest costs account for roughly ~60% of total operating costs of banks under study. Trends in Operating Expenses, % YoY Interest expenses % of total Income 45.0 All Public Private 55.0 All Public Private 4 38.3 38.3 5 45.0 45.6 48.2 35.0 32.6 4 35.0 31.2 25.0 25.0 Q4FY11 Q1FY12 Q2FY12 Q4FY11 Q1FY12 Q2FY12 Employee expenses % YoY Expenses as % Of Total Expenses 6 5 52.1 All Public Private 19.0 18.0 All Public Private 17.7 4 17.0 16.0 16.1 17.6 14.0 13.0 13.5 13.2 8.6 12.0 11.0 Q4FY11 Q1FY12 Q2FY12 Q3FY11 Q4FY11 Q1FY12 Q2FY12
NIMs Of Most Banks Improved Net interest margins improved in Q2FY12 for a majority of the banks due to efficient pass-through of higher deposit costs. PSU banks saw NIMs improving in Q2 compared with private banks Both PSU and private banks improved their NIMs alike. Major banks such as SBI and Punjab National Bank registered a rise in NIMs. HDFC Bank posted a marginal decline while ICICI Bank saw a marginal improvement in NIMs over the quarter. Axis Bank, Dhanlaxmi Bank, Development Credit, Yes Bank and ING Vysya registered sequential improvement in NIMs. QoQ Movement in NIMS in Q2FY12, (bps) Oriental Bank City Union Bank S B T HDFC Bank Federal Bank IDBI Bank IndusInd Bank South Ind.Bank Lak. Vilas Bank Karnataka Bank St Bk of Mysore St Bk of Bikaner Pun. & Sind Bank ICICI Bank Andhra Bank Yes Bank Union Bank (I) Punjab Natl.Bank United Bank (I) Dhanlaxmi Bank St Bk of India Bank of Baroda Canara Bank Bank of India Syndicate Bank Allahabad Bank Dev.Credit Bank Dena Bank Indian Bank ING Vysya Bank Corporation Bank UCO Bank Vijaya Bank Axis Bank -0.30-0.18-0.16-0.10-0.10-7 -6 FY12 Q2 0 0 0 0 0 0 1 5 0.10 0.11 0.11 0.14 0.15 0.17 0.20 0.22 0.25 0.28 0.28 0.31 0.32 0.33 0.33 0.33 0.38 0.40 0.50-0.40-0.30-0.20-0.10 0 0.10 0.20 0.30 0.40 0.50 0.60
25/Sep/10 23/Oct/10 20/Nov/10 18/Dec/10 15/Jan/11 12/Feb/11 12/Mar/11 09/Apr/11 07/May/11 04/Jun/11 02/Jul/11 30/Jul/11 27/Aug/11 24/Sep/11 25/Sep/10 23/Oct/10 20/Nov/10 18/Dec/10 15/Jan/11 12/Feb/11 12/Mar/11 09/Apr/11 07/May/11 04/Jun/11 02/Jul/11 30/Jul/11 27/Aug/11 24/Sep/11 Banking Sector Dynamics Credit growth came down in Q2 but stayed above RBI s 18% Target for FY12 Credit growth of scheduled commercial banks in Q2FY12 came down to 19.5% YoY compared with 20.70% YoY in Q1FY12. Credit growth declined due to slowdown in industrial activity caused by policy uncertainty and monetary tightening. Credit growth has dipped further since Q2 -- 17.32% YoY as of November 30. Scheduled Commercial Banks Position `crore `crore % YoY % YoY Q1 FY12 Q2FY12 Q1 FY12 Q2FY12 Deposit 5366611 5530267 18.69 17.38 Credit 4012107 4093155 21.02 19.5 Food 77954 68245 47.17 35.86 Non Food 3934153 4024910 20.59 19.26 Source: RBI Deposits growth did not pick up in Q2FY12, but stayed higher than RBI s FY12 target of 17% Deposits growth of scheduled commercial banks stood lower at 17.38% YoY in Q2 compared with 18.69% YoY in Q1FY12. Deposits growth has improved post Q2FY12 and now stands at 18.02% YoY as of November 30. This was primarily due to banks raising interest rates on deposits. 25 Credit Growth Trends % YoY 20 Deposits Growth Trends % YoY 24 23 22 21 20 19 18 17 16 17.38 19 18 17 16 19.50 15 14 13 15 12
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