Indian banks Q4 profits seen up on loans growth

India's top banks are expected to report quarterly profit growth of 15 to 30 percent on a year ago, driven by loan growth, and analysts say more borrowing by companies and individuals will keep those growth rates buoyant.

Indian companies have stepped up their borrowing over the past year to pay for investments in new capacity and acquisitions to meet growing domestic and global demand.

Banks have also been chasing India's middle-class, estimated at some 300 million people, which has been splurging on new homes, cars and consumer goods as incomes rise in the rapidly expanding economy, Asia's fourth-largest.

Analysts reckon retail borrowing is growing at some 35 percent a year, and makes up about half the loan portfolio of top private banks such as ICICI Bank Ltd. and HDFC Bank Ltd.

Even for government-run State Bank of India, India's largest bank and a relative latecomer to the retail lending sector, such loans comprise a quarter of its $50 billion loans portfolio, analysts say.

The outlook is only marred by the sluggish bonds market and the prospect of rising interest rates later this year. As banks have more than 40 percent of their deposits invested in debt, rising yields would depress the value of their holdings.

Still, analysts said they expect the strong trend in loans growth to continue. Central bank data showed that bank loans grew 26 percent in the year through March 25, versus 15 percent a year earlier.

HDFC Bank, the country's third most valuable bank, is expected to report on Wednesday profits jumped 30 percent for the fiscal fourth quarter ended March 31 to 2.01 billion rupees ($46 million), a Reuters poll showed.

"Credit demand had slowed down in the fourth quarter, but it has continued to remain strong compared with last year, and that will be the main driver for earnings," said Rajesh Malani, analyst with Prabhudas Lillaher Securities Ltd.

ICICI Bank Ltd., India's second-largest bank, is expected to announce on April 30 a 20.4 percent rise in profits to 5.48 billion rupees.

Government-run State Bank is seen posting 14.7 percent growth in profits to 10 billion rupees. Its results are due by the end of June.

Malani said earnings would also be helped by falling bad loans, and the absence of further provisions for pay increases for bank workers, that knocked profits in the second and third quarters.


Some analysts are concerned about the impact of a weak bond market on banks' earnings.

"It is an uncertainty. Some banks could see investment losses, and it is difficult to say how much," said an analyst.

Bond prices have fallen over the past year, with the benchmark 10-year government bond yield now at about 7 percent, off an October 2003 record low of 4.94 percent.

The central bank has allowed banks some accounting leeway to soften the blow from a slide in bond prices. Banks do not have to adjust the value of their bond holdings in their books if the investment is held till maturity.

Bank shares, which have surged over the past year on moves for consolidation in the sector, may have run their course, analysts said.

The Bombay exchange's banking index climbed 25 percent over the past year, outperforming a 9.5 percent rise in the key Bombay index.


Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Are you a day trader?