Q3FY2009 Banking earnings review
Robust performance, but challenging times ahead
While Q3FY2009 results have been a positive surprise from bottom line perspective, there are tough challenges ahead. First, the advances growth at industry level has moderated, as slowing economic activity catches up with credit demand. This along with likely pressure on NIMs implies a likely moderation in top line growth for public sector banks going forward. Second, treasury gains may come off, as g-sec bond yields have decline sharply and probability of further decline is less. Third, the anticipated further deterioration in credit quality will put pressure on bottom line by way of higher NPL provisions. In view of all these factors, we believe that Q3FY2009 earnings growth may prove to be a peak. Further, the potential challenges in the quarters ahead will separate chaff from wheat. Amongst the public sector banks we prefer PNB and UBI (owing to their strong provisioning coverage), while from the private sector HDFC Bank remains our preferred pick.
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