Banking Stocks Earnings Re-Calibrated to Adjust for Slower Growth

Banking Analysts have cut cut earnings estimates for the banking sector by 12-15% over FY14-16 as they build cuts to GDP forecasts and continuity of high interest rates. Asset quality pressures will aggravate and expect some moves from the Finance ministry to protect the Banks. PSU banks are most vulnerable due to higher exposure to SME and riskier segments, pressure on staff costs and sensitive investment-book. In this backdrop, Loan growth should moderate to 12-15% over medium term and banks with stronger deposit franchise will gain share from low CASA banks and other financiers.

Corporates with unhedged forex exposure would also face additional stress. Expect gross NPL ratio to rise from 3.3% of loans on Mar-13 to 5.6% by Mar-16 and this will push-up credit costs. In this tough macro, Stronger deposit franchise will support
margins against rising cost of funding.

Here is an EPS Estimate of Select Private & PSU banks for FY 2014 and FY 2015.
Axis Bank – Rs 121 & 148
HDFC Bank – Rs 35 & 42
ICICI Bank – Rs 81 & 95
IndusInd – Rs 23 & 29
Yes Bank – Rs 36 & 43

Bank of Baroda – Rs 91 & 111 [Drop from Rs 106 in FY 2013]
Bank of India – Rs 39 & 48 [Drop from 47 in FY 2013]
PNB – Rs 107 & 135 [Drop from Rs 137 in FY 2013]
Canara – Rs 48 & 61 [Drop from Rs 65 in FY 2013]
SBI Consolidated – Rs 214 & 281 [Drop from Rs 261 in FY 2013]

The Earnings Tell that PSU Banks have gone back by 2 years in their Earnings Potential. Hopefully, the paralyzed scam ridden government takes some measures to recover Non-Perfomring Assets & loans of these banks without vote bank politics.