Earnings Recovery Likely

The banking sector may get a boost in the December quarter of 2018/19 on likely treasury gains following the recent 70-80 basis points drop in bond yields. However, higher provisions could play spoilsport. It was all evident in Q3FY19 earnings of early birds IndusInd Bank and Bandhan Bank whose fresh provisioning on the IL&FS account squeezed profit growth.

The RBI has asked banks to make provisions for loans extended to the beleaguered NBFC. Provisioning for NPAs could compound worries. NII growth, meanwhile, is seen going up, thanks to systematic loan growth touching a multi-year high of 15 per cent, moderation in credit costs, and comeback of pricing power due to ease in competition.

NIMs too are expected to stabilise. Investors will be watching for management commentaries on stress in the SME segment. Meanwhile, the commentary on restructuring advances to MSMEs will also be key to the sectoral outlook.