Banks, HFCs Q3 Results Preview - NIM Expansion To Be Lower Compared To Q2: Prabhudas Lilladher

Prabhudas Lilladher Report

Banks in our coverage universe are expected to see lower growth in core earnings (up 3.2% QoQ) compared to previous quarter (up 12.7% QoQ) driven by slower net interest margin expansion and rise in provisions.

Coverage banks could report softer loan growth at 3.3% QoQ (versus 5% in Q2 FY23), while deposit accretion could be up 3.4% QoQ. Incremental deposit cost has risen sharply in Q3 FY23; hence we expect NIM for banks to grow at a slower pace by 12 basis points QoQ to 4.0% compared to up 22 bps in previous quarter.

Axis Bank Ltd., City Union Bank Ltd. and DCB Bank Ltd. could be outliers on NIM expansion. Opex to remain elevated (up 6.1% QoQ), though intensity could slightly reduce.

Healthy net interest income accretion would see core pre-provision operating profit at Rs 753 billion (up 4.5% QoQ/22.1% YoY).

For coverage housing finance companies, assets under management may uptick by 2.9% QoQ compared to NII rise of 10.4%, as LIC Housing Finance Ltd. should see interest income normalise. As a result, NIM may improve by 21 bps to 3.16%.

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