Public sector banks are likely to post a lacklustre Q1 performance due to high

RELATED ARTICLES PSU banks cut corporate loans for retail growth Private airlines owe Rs 14,573 crore to PSU banks

exposure to sectors such as infrastructure, auto, textiles and real estate that are hard pressed to service loans, said industry experts.

As a result, they said, PSU banks will have to increase provisions, which will lower their profits and returns on assets and equity.

“Also, high interest rates and inflation will force SMEs and other weaker borrowers to delay or default on repayment. Considering their huge size and lending commitments, PSU banks are expected to take a hit this quarter,” said Ajay Parmar, head of institutional research at Emkay Global.

While the first quarter will reveal the quality of assets built up by PSU banks and the margin pressure, private sector banks, which have better and more stable assets, may not see a similar impact, experts said.

Private sector lenders like HDFC Bank and Kotak Mahindra Bank have already reported Q1 net profit growth of 33.7 per cent and 27 per cent, respectively. At the same time, net profits of State Bank of Mysore and State Bank of Travancore have fallen by 42 per cent and 7 per cent respectively.

While it is known that higher interest rates would impact net interest margins, the quantum by which NIMs shrinks is what is to be seen, said some experts, while others predicted a 10-15 basis point drop.

The build-up of bad assets may become more visible in Q2 and Q3, according to experts. Even HDFC, which clocked good numbers in Q1, saw an increase in gross NPA.

Meanwhile, the industry would be looking for the Q1 numbers of State Bank of India, the largest lender, which sprang a surprise in Q4 last year with a 99 per cent fall in profit due to higher provisioning.

“SBI has already been lagging behind other banks in terms of provision coverage ratio. This quarter they will have to make provisioning of about Rs 550 crore. Our own internal estimates show that SBI’s Q1 profits could be in the range of Rs 1,500-1,600 crore as against the Rs 2,500 crore range the bank has seen,” said Rajiv Mehta, assistant vice-president of research at India Infoline.